“Is college worth it?” Boston Fed research indicates the answer is yes. It shows a correlation between higher salaries and higher educational attainment in New England over the last 40 years. Also, people with more education have higher starting wages and steeper salary raises throughout their careers.

But there’s nuance.

Pinghui Wu is a senior economist who co-wrote the recent research. She discusses why New England has higher educational attainment than most regions, and how that affects incomes. She also talks about the “college premium” – the fact that workers with college degrees earn more than those with high school degrees. And she explains how that premium grows or shrinks based on factors like gender, what people study, and the availability of work in a skilled trade.

The paper Pinghui Wu co-authored is “Educational Attainment and Wage Growth in New England: Evidence From Four Decades of Administrative Wage Records.”

A related working paper is “Educational Attainment and the Evolution of Cumulative Earnings across 45 US Birth Cohorts.”

For more interviews and analysis of the economy in New England and nationwide, visit BostonFed.org/SixHundredAtlantic.aspx. Subscribe to our email list to stay updated on new episodes.

Jay Lindsay:

Hi, I'm Jay Lindsay. This is the Boston Fed's podcast, Six Hundred Atlantic. Now, it's not news that college is expensive and that families everywhere are planning for it, they're paying for it, they're trying to figure out if it's worth the cost.

Our guest today is Boston Fed senior economist Pinghui Wu, and she's done some work that's relevant to all this. Her most recent paper looks at links between educational attainment and wage growth in New England. So, here are some of the headline findings: Per capita income is way up in New England over the last four decades. Also, more New Englanders have bachelor's degrees and advanced degrees than the rest of the nation. And there is a correlation between all this. The paper notes more highly educated people have higher starting wages and steeper salary raises throughout their careers.

But despite all this, the persistent question of whether college is worth the rising costs has more nuance than you might think. So, we'll talk about all that and more today. Welcome to the podcast, Pinghui.

Pinghui Wu:

It's great to be here.

Jay Lindsay:

So, let's talk first about the increases in per capita income in New England since 1980. Where does the region rank in income growth compared to the rest of the country over that period?

Pinghui Wu:

Between 1980 and 2024, per capita income in New England has grown more than eight-fold. That's from 11,000 to 88,000. That's the highest growth rate among all nine Census divisions and really faster than the national average, which grew about seven times over this period. Now, these are in nominal dollars, so they don't account for inflation. But even so, New England's income growth has been exceptional.

Jay Lindsay:

Your paper also notes that this growth in per capita income coincides with significant growth in educational attainment in the region. Specifically, we're talking about getting bachelor's degrees and higher. Can you talk about the growth there, and how that compares to the rest of the country?

Pinghui Wu:

Sure. Over the same period, New England saw these huge increases in educational attainment. The share of workers with bachelor's degrees jumped by 16 percentage points, the second highest in the country. And what's even more striking is graduate education. New England saw a 12-percentage point increase in workers having post-graduate degrees. That's nearly double the seven-percentage point increase we saw nationally and the highest across all nine Census divisions.

Jay Lindsay:

Why would this be? Is there any indications, I should say, in your research, why New England would have higher educational attainment than other areas? Obviously, we're known here for our colleges, but do factors like the presence or the lack of presence of certain industries kind of work into that answer?

Pinghui Wu:

Yes. The educational attainment definitely reflects New England's unique industry structure. So, in the region, 37% of jobs are in education, healthcare, or professional services. Think hospitals, colleges, and R&D firms. That's six percentage points higher than the national average. And these are exactly the sectors that demand highly educated workers. Nationally, about 6 in 10 workers in these industries hold at least a bachelor's degree and 3 in 10 have graduate degrees.

But on the flip side, New England has fewer workers in construction, retail, transportation, hospitality, sectors where college educated workers make up less than 30% of the workforce. So, there's really a reinforcing cycle here. Industries that need educated workers are drawn to the region, and the abundant supply of educated workers help attract and sustain those industries.

Jay Lindsay:

Your research indicates there's a couple places where college-educated individuals have an advantage when it comes to wages. First, when they're starting out, there's higher starting pay. Then the wage gains throughout a career are greater. Can you talk a little bit about those factors?

Pinghui Wu:

We all know that workers with college degrees earn more on average than high school graduates. This is what the economists would call the “college premium.” But what's really interesting is how this premium forms and grows over a career. So let me give you a concrete example here. Take men born in 1975. At age 25, right at the start of their careers, those with just a bachelor's degree, on average, earned about 20% more than high school graduates. That's around $6,500 more in today's dollars.

Jay Lindsay:

But it grows even more quickly after that, doesn't it? I was noticing that in your paper.

Pinghui Wu:

Yes. Here's where it gets striking. College-educated workers see their earnings grow much faster. So, by age 35, the gap widens to 68%, and by age 45, it's 82%. So, the college premium more than triples in percentage terms and grows over six times in real dollar value between age 25 and 45.

Jay Lindsay:

So, why does this gap, why does it widen so quickly?

Pinghui Wu:

The key here, really, is upward mobility, and that comes down to the types of jobs a college degree opens up. College graduates tend to enter professional fields. Think business, engineering, medicine, education, where there are clear paths for advancement and opportunities to build skills on the job continuously. High school graduates, on the other hand, more often work in jobs with flatter career trajectories. So, it's not just that college graduates start higher on the ladder. They're on ladders that actually go somewhere and have room to climb.

Jay Lindsay:

That's interesting, Pinghui. One thing that I look at just as a lay person, you figure, okay, people are losing years of wages and years of experience when they're going to college as opposed to someone who goes right in. So, you figure that has a cost. Can you address that a little?

Pinghui Wu:

Because of the growth advantage I just discussed, college graduates typically more than make up for those lost years of earnings. In my recent research, I tracked individual workers cumulative earnings across different birth cohorts in the U.S.

For men with only bachelor's degrees born in the mid-1950s, they earned 49% more. That's $354,000 more in today's dollars than high school graduates over the 20-year period, between age 25 and 44.

But for men born in the mid-1970s, 20 years later, the same 20-year earnings gap grew to 73% or $531,000 more. And keep in mind, this only covers age 25 to 44, and the earnings difference later in their careers are even larger. So, even just looking at those 20 years, the gains on average far outweigh what they gave up by staying in school longer.

Jay Lindsay:

There's been significant debate in recent decades about whether college is worth it, and the debate is obviously sparked by the fact that the price tag is so high and getting higher. But it seems your findings might provide significant evidence that, yeah, the answer is, “Yeah, it is worth it.” Can you discuss that?

Pinghui Wu:

Yes. And this question is actually more complicated than it might seem, despite the very large average college premium I just mentioned. And there are three important factors to consider here. First, the college advantage has been stalling for many in more recent decades.

So, between men born in the mid-1950s and mid -1960s, the college premium grew from 40% to 54%, but this number barely budged for the next 10 birth cohorts. And meanwhile, as you said, the average tuition and fees for four-year colleges more than tripled in the past four decades.

So, for men with just bachelor's degrees, we're seeing stagnant earnings growth colliding with soaring costs. And depending on how someone finances their education, through loans, for example, this could really narrow the actual college premium that younger graduates experience.

And it's important to note here that women tell a very different story. For these same more recent cohorts, college-educated women have seen steady and robust earnings growth. So, their college premium continues to expand and grow at a very healthy rate. So, the “Is it worth it?” question, it's less pressing for women than for men.

Jay Lindsay:

So, Pinghui, just to be clear, it's slowed down for men in terms of this college premium, right? But it still exists. Is that correct?

Pinghui Wu:

Yes. It may have narrowed a little bit for more recent graduates, but it's still very substantial.

Jay Lindsay:

Okay, great. You were going to talk about three factors. We've hit one, what are the other two?

Pinghui Wu:

The second is, we have been talking about averages, but averages hide a lot of variation among college graduates. The bottom 25% of bachelor degree holders have always earned less than the top 25% of high school graduates, and that's before factoring in the rising cost. And the spread among college graduates themselves has been widening. Wage growth in more recent years has increasingly concentrated among the top earners and those who continue to get postgraduate degrees.

Lastly, there's AI on the horizon. Recent research by Boston College economists showed that AI raises the value of social skills and non-routine manual skills while reducing return to certain analytical skills, which is still the focus of most college education. So, this means that the introduction of AI could really deepen the divide within college graduates, though we're still very early in terms of understanding how exactly this will play out.

So, while on average, college graduates earn significantly more, like I just mentioned, for individual students, whether college pays off will increasingly depend on their strength, the specific school and field they enter, and where they're likely to land in their college earnings distribution. So, if you're someone who would probably end up earning below the median among all college graduates, and you could otherwise excel in a skilled trade that doesn't require a degree, the return on college after accounting for the rising costs can become quite thin or even turn negative.

Jay Lindsay:

So, the answer to the question, “Is college worth it?”, it's a little more complicated than it might appear. It seems on balance, the answer is definitely, “Yes,” but there's some nuance there.

Pinghui Wu:

Yes, you're absolutely right.

Jay Lindsay:

Thanks for that, Pinghui. Your paper talks about the “spillover effects” of having higher wage earners in the region. In other words, it seems like all workers benefit, not just those with degrees. Can you talk about that a little bit?

Pinghui Wu:

Yes. And this is one of the more interesting findings in my paper. In New England, only about one third of the region's higher wage growth that we talk about can be explained by the region having more highly educated workers. The other two thirds come from workers at every education level earning more than comparable workers elsewhere in the country. So, there's clearly something about the region itself that's lifting all boats.

I found two mechanisms at work here. First, New England workers are more productive. In 2023, the average worker in the region produced about $8,900, or 6% more output than the national average. Second, firms in the region spend a larger share of their revenue on worker compensation, about 2.6 percentage points more than the U.S. average.

Jay Lindsay:

I'm wondering if that relates to something you talked about earlier, which is they have to get higher-paying workers, they have to attract workers here. Is that one factor why they pay more?

Pinghui Wu:

Yes. And then here is where it gets interesting. These two factors, they play out differently across industries. In sectors like professional services, education, and healthcare, which has a lot of highly educated workers, firms, they show strong productivity advantage, but they don't necessarily spend more on worker compensation as a share of their revenue. They're productive enough to afford higher wages without squeezing their margins.

However, in manufacturing and trade, productivity is just average compared to the rest of the country, yet the companies are spending significantly more on worker compensation.

And what's the reason? It's because they're competing for workers in the same regional labor market. When hospitals and tech companies are paying higher wages, manufacturers, they have to raise their wages too, even without the same productivity gains to support it. And since these are tradable sectors where firms can’t really easily raise prices, this wage pressure cuts directly into their margins.

Jay Lindsay:

So basically, because the value of labor here is just higher, it really benefits everyone at every skill level?

Pinghui Wu:

Exactly. Because of this high concentration of educated workers in high-paying jobs, it creates this ripple effect that raises wage across the entire regional economy. It's like a double-edged sword. Workers at every level experience this growth, but it creates real challenges for firms that can't easily pass those higher labor costs onto customers.

Jay Lindsay:

Your paper, it says your findings, quote "Suggest that policies focused on developing, attracting, and retaining a highly educated workforce can yield broad economic benefits." So, what kind of policies are we talking about here?

Pinghui Wu:

There are really, broadly, two types of policy that can make a real difference here. First, making college, specifically the kinds of programs actually pay off, more accessible, especially for students from lower-income families. Right now, there's this stark divide. Nationally, 89% of our kids from the wealthiest 20% of families go to colleges right after high school, but only about half of kids from the bottom 20% families do.

And this second bucket of policies is attracting the kinds of industries that need educated workers – life sciences, healthcare, tech – and that means tax credits, infrastructure, investment, workforce training programs.

But here's, I think, the most important takeaway from my research. Regardless of the type of policy, these policies don't just help the people they directly touch. When you invest in education and attract high-skill industries, you create these spillover effects we talk about earlier. Wages rise for workers at every skill level. So, it's not just about helping individual students or specific companies, it's about lifting the entire local economy.

Jay Lindsay:

Pinghui, that's all the questions I have. Thanks a lot for spending some time with us today.

Pinghui Wu:

Thank you for having me.

Jay Lindsay:

Pinghui's paper is titled, “Educational Attainment and Wage Growth in New England: Evidence from Four Decades of Administrative Wage Records.” You can find it on bostonfed.org or in the show notes at bostonfed.org/sixhundredatlantic. You can also check out our podcast interviews and seasons there.

While you're on the site, please subscribe to our email list to stay informed when episodes are released. And we here at Six Hundred Atlantic would love it if you'd rate, review, share, and subscribe to the podcast on your favorite podcast app. I'm Jay Lindsay signing off on another episode of Six Hundred Atlantic. Thanks for listening.