Rationale and Methodology

Anybody trying to create a more productive higher education system must also keep a close eye on the quality of programs and the value of the credentials they produce. Churning out additional degrees and certificates may well be an illusory victory if increases in productivity come at the expense of program quality or rigor. Furthermore, if the additional credentials produced don’t match up with employer demand, increases in attainment may not pay the expected dividends. Postsecondary credentials with little labor market value will produce neither the personal benefits (higher wages and social mobility) nor the positive externalities (higher tax revenues, a skilled workforce that is attractive to businesses) that states are keenly interested in.

The key questions, then, are whether postsecondary programs add meaningfully to their students’ human capital, and whether the additional education equips graduates to get better jobs and earn higher wages.

As in most areas of higher education, measurement of these outcomes is difficult. There is no consistent way to measure value-added in student learning across campuses and states. National licensure exams and graduate school entrance assessments can sometimes provide suggestive evidence for program quality, but these data are difficult to come by and not always informative. Licensure exam results are often reported in the form of “ultimate passage rates,” meaning that an individual can take the exam multiple times before the results are recorded in the overall passage rate. Little surprise, then, that many institutional passage rates cluster in the 95% to 100% range, with many institutions reporting a 100% passing rate on a given exam. As a result, it is often difficult to document variation across institutions or states on these measures.

Accurately assessing labor market outcomes is similarly challenging. While we know a lot about returns on degrees and certificates in the aggregate, we have much less information on how graduates from particular institutions or programs fare in the labor market. Some states are making great progress on this front. But in general, there are few systematic ways to measure the labor market outcomes of particular institutions or state systems of higher education.

In the absence of better data, we relied on wage, employment, and education attainment data collected by the U.S. Census in the American Community Survey (ACS). The ACS, first fielded in 2000, surveys approximately 3 million people per year and is the most reliable source of data for calculating state- and sub-state- level estimates of education attainment, income, and other demographic characteristics. We used the ACS data collected during the 2008–2010 period.

We analyzed two basic metrics at each degree level, associate’s and bachelor’s. First, we examined the difference in median annual wages between postsecondary degree holders and those who graduated from high school but did not go on to college. Second, we observed the difference in unemployment rates between those with a postsecondary degree (AA or BA) and high school graduates. We rated states on these measures for two different age groups: the states’ youngest workers, ages 25–34, and all workers ages 25–64.

While imperfect, these measures provide a sense of how much of a wage premium each type of degree commands across the states, as well as how well those degrees protect workers from being unemployed. It seems intuitive that if the labor market is flooded with low-quality degrees or degrees in disciplines that do not match up with employer needs, graduates will have a more difficult time finding a job that pays well. In a labor market where the production of skilled graduates matches up well with employer demand, we would expect that degree holders will be both more likely to be employed and able to command higher wages.

Because these gaps are measured in reference to the fortunes of high school graduates within the state, they do not simply reflect the strength or weakness of the state’s economy. It is important to note that, unlike the other metrics, these data cannot be used to directly assess the output of the public system of higher education in these states. We do not know where the individuals received their degrees, and some proportion of the survey respondents may have migrated into the state from somewhere else. However, in light of data limitations, these aggregate wage and employment data shed some light on structural mismatches between employer demands and postsecondary attainment within the state.

Median Wages of Degree Holders Compared With High School Graduates.

To construct this measure, we identified all respondents to the ACS who held a bachelor’s degree, associate’s degree, and high school diploma or equivalent. We then calculated the median annual wage for each group, counting only workers with positive earnings who reported working 35 hours or more per week (members of the armed forces were excluded). We compared these medians among AA or BA holders with those of high school graduates for each age group mentioned previously. We rated states on the ratio of the median wage for degree holders to the median wage for high school graduates (we reported this ratio as a percent). Higher ratios indicate a larger payoff to having a postsecondary degree. We also reported the raw dollar figures.

Difference in Unemployment Rates Between Degree Holders and High School Graduates.

We used the ACS items on labor force participation and employment status to calculate an unemployment rate at each level of attainment. The unemployment rate is simply the proportion of individuals who report that they are in the labor force but not currently at work (members of the armed forces were excluded). We calculated that rate for each level of attainment and measured how much more likely workers with a high school diploma are to be unemployed than those with a postsecondary degree. In order to avoid punishing states that have low unemployment across the board, we did not rate states on the raw gap in unemployment rates. Instead, we used the ratio of the unemployment rate among those with a high school diploma to the unemployment rate among those with each type of college degree. This ratio captures how much more likely a high school graduate is to be unemployed than a worker who has completed college. We also reported the gap in unemployment rates. We calculated these measures for each age group listed above, and awarded points to states on how well they ranked vis a vis the rest of the country.

Findings

Michigan and Alabama were among the top-performing states in terms of how associate’s and bachelor’s degree holders fared in the labor market. Each of these states received an A rating at both levels. Workers between the ages of 25 and 34 with an associate’s degree in Michigan earned about $8,700 (or 34%) more than their peers with a high school diploma; in Alabama, those younger workers with a BA were considerably less likely to be unemployed (by 9%) than those with a high school diploma. Maryland also fares well, earning a B at the BA level and an A at the associate’s level. California sits just outside the top tier at both levels.

The laggards included a number of western states, with Montana receiving the lowest marks in each postsecondary sector. Idaho, North Dakota, and Colorado each earned one D and one F on the two measures; New Hampshire and West Virginia also received low ratings. When it comes to median wages, the youngest associate’s degree holders in Colorado and Idaho earned just 14% and 12% more than high school degree holders, respectively. Young bachelor’s degree holders in North Dakota and Montana earned about 28–31% more than high school graduates, well below the average increase of 50% across all states.

At the associate’s degree level, we found that Alaska’s degree holders are fairly successful. According to our data, just 4% of all Alaskans with an AA degree reported unemployment. This may reflect, in part, the fact that the state’s lone public community college produces few degrees each year, meaning that AA degrees are in high demand. Associate’s degree holders also do well in Mississippi, where young high school graduates were 2.5 times as likely to be unemployed as those workers with an AA.

Detailed Findings

Median Wages of Degree Holders Compared With High School Graduates.

According to the ACS data, at the national level associate’s degree holders between the ages of 25 and 64 who reported working more than 35 hours a week earned just over $9,000 more annually than those with a high school diploma or equivalent. The national wage gap between high school graduates and those with a bachelor’s degree was more than double that, at $21,200. High school graduates nationally made over $31,400 in median annual income in the 2008–2010 period, while BA holders earned almost $53,000. The gaps were smaller for the youngest group of workers, but still substantial at $8,500 for AA holders and $16,500 for BA holders.

These national patterns varied considerably at the state level, with degree holders faring much better in some states than others. Across all workers, associate’s degree holders in California, Maryland, Tennessee, and Vermont earned a median wage that was around 40% higher than the median wage among those with a high school diploma. California’s AA holders did particularly well compared to their high school-educated peers.

Virginia, Michigan, Alabama, and Texas joined California to make up the top five when it comes to the size of the BA wage premium. In all five states, the median income for bachelor’s degree holders was between $20,000 and $28,000 higher than the median income of those with only a high school diploma. Bachelor’s degree holders in California and Virginia earned a median wage that was almost twice that of high school graduates (1.87 times as high).

Degree holders did not fare nearly as well in some of the western states, as previously highlighted. The median wage among associate’s degree holders in Montana and Wyoming was only about 12% to 15% higher than the annual earnings of high school graduates. In addition, North and South Dakota, Nebraska, and Idaho all had median wage premiums below $6,000. These states also had some of the lowest wage premiums among BA holders; in Montana, North Dakota, and Wyoming, the median wage among bachelor’s degree holders was less than 1.4 times the median wage among high school graduates.

Difference in Unemployment Rates Between Degree Holders and High School Graduates.

Associate’s degree holders in Mississippi, Alaska, and Alabama were much less likely to be unemployed than their peers with just a high school diploma. Having an associate’s degree lowered an individual’s unemployment rate, on average, by between four to six percentage points in those states. High school graduates in those states were almost twice as likely to be unemployed as those with an AA. The employment dividend for associate’s degree holders of all ages was actually quite small in Montana, New York, and Oklahoma, where AA holders had unemployment rates that were less than one percentage point lower.

The BA provides even more insulation from unemployment. Bachelor’s degree holders in Michigan and Alaska had unemployment rates that were between seven and eight percentage points lower than those with a high school degree. These workers were also much less likely to be unemployed than their high-school-educated peers in Iowa, Arkansas, and Louisiana.

Clearly, the payoff to having a degree remains high, even in states that are in the middle of the pack. But these labor market measures do raise important questions about the quality and supply of college-educated workers across the states that are worthy of further research. With better data on labor market outcomes, researchers and policymakers can get a much better grasp on the institutions, degree programs, and credentials that promise the largest payoff.