by Katharine L. Bradbury
First Quarter 2002

A considerable body of economics research has described and investigated the educational wage premium—the degree to which highly educated workers are paid more than less educated workers. The payoff to education has risen steeply in recent decades and accounts for a significant fraction of the increase in overall wage inequality. These two facts have led many to conclude that, at least from an individual perspective, higher educational attainment is a passport out of the lower end of the income distribution. However, given the time and resources that both individuals and society are investing in higher education, it seems useful to ask if everyone sees the same payoff to educational upgrading.

The author describes median earnings by sex, race, Hispanic origin, and educational attainment during the 1980s and 1990s and then seeks out the sources of wage differences at each education level. She finds that some wage differences are attributable to differences in non-education worker qualifications such as work experience, or job characteristics such as occupation. But after controlling for a variety of these observable characteristics and for business cycle influences, wage disparities by race, Hispanic origin, and sex remain, even within educational categories. For example, at the end of the 1990s, blacks not only earned lower wages at each education level, but also realized less of an increment to wages for additional education (graduating from high school or earning a college degree) than otherwise similar nonblacks.

Full-text article (1.6MB)