More education won't necessarily make you richer, new research reveals

March 24, 2016 by Andy Dunne
Credit: George Hodan/public domain

New research presented this week at the Royal Economic Society Conference from our Department of Social & Policy Science questions the commonly held belief that more education is 'good for you' and results in higher wages and better life outcomes.

The new study, by Dr Matt Dickson, with collaborator Dr Franz Buscha, examines for the first time in the UK, the relationship between wages and over the entire life-cycle.

Its finds that:

  • An additional year of schooling from the 1972 education reform in England and Wales resulted in a lifetime earnings loss of up to £45,000 over a 35-year period.
  • Experience matters. Minimum school leaving age reforms might increase education but they also lead to a loss of potential labour market experience.
  • The effect of experience lost is not overcome until individuals are in their mid-30s.
  • When only the 'pure' education effect is examined, results suggest a positive return of approximately £60,000 over a 35-year period.

The report raises important questions about why education and investment in human capital are important and whether more education implies that people earn higher salaries. In addition it challenges when such effects are felt over a life-course and how might our current generation of children be affected by the recent raising of the participation age to 18.

Measuring the long-term effects

By carefully examining individual lifelong data from the Office of National Statistics (ONS) New Earnings Panel Dataset, the study for the first time provides an insight into the year-by-year effects of the 1972 reform that raised the school leaving age. This reform increased the compulsory minimum school leaving age from 15 to 16, substantially increasing the average length of schooling and qualification outcomes for many children.

But when comparing the lifetime wage trajectories of individuals who were born shortly before and shortly after the reform, the authors find that those with additional education suffered significantly lower wages in the first part of their working lives. On average, men with additional education suffered lower earnings until they were aged mid-30s. Post mid-30s wage differentials were non-significant.

Previous work on this question generally suggested that the effect of 1972 school leaving age reform was positive; more recent estimates have challenged the magnitude of such effects suggesting a downward revision from 15% to 5%. But none of these studies examined the early parts of the life-cycle, concentrating only on the later working years.

The new results show that the overall effect of an additional year of schooling on hourly wages was at best 0% and at worst -5%, which equates to a lifetime loss of £45,000, assuming full-time work.

Importantly, the authors argue that this negative effect is induced by the loss of early labour market experience and that previous studies did not adequately deal with this phenomenon. When correcting for this, the authors identify that the effect of education remains positive and significant.

Balancing opportunity costs of education

In other words, the results of this research show that school leaving age reforms must consider not only the benefit of additional education that children might receive but also the opportunity cost that the loss of experience might incur.

Dr Dickson from the Centre for the Analysis of Social Policy explains: "When teenagers leave school and enter the labour market they are competing with others from the previous school year who will always have had a year more experience. In the case of this reform, staying longer in school meant that the affected young people were two years behind. This is really important at the start of a career and made it more difficult to compete for jobs, meaning that they began on lower wages and took more than a decade to close the gap."

Dr Buscha added: "Our research shows that it is important that when designing school leaving age reforms, such as the recent Raising of the Participation Age, that children are not only made to learn useful skills during this additional education but that practical arrangements are made to smooth integration into the labour market such that the negative effects of lost work experience are kept to a minimum."

Explore further: Study sees positive impact of raising New York's minimum wage to $15 an hour

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5 / 5 (3) Mar 24, 2016
In my 30s I considered going back to university and doing a PhD. Then I worked out the costs, factored in lost earnings, and bought a house instead.
2 / 5 (4) Mar 24, 2016
For so long, people talked about "streets smarts", "college of hard knocks", "It's not what you know, it's who you know" and "the right place at the right time", and all were condemned by college "educated" "experts" as just trying to put a sheen on being a moron. How many kids did end up with jaded views of their parents who didn't have more than a high school education? The fact is, at last right now, things are complicated by the fact the New World Order is playing hard ball. They work to keep anyone from rising who isn't "the kind of crook they can work with". With this de emphasis on college, one suspects they are working to make as many as possible only drudges, thinking there is nothing higher than their roof top, and, in that way, take another step toward their goal of enslaving as much of humanity as they can.
not rated yet Mar 24, 2016
Merely learning about the achievements of others is not the ultimate achievement
1 / 5 (1) Mar 24, 2016
Well, it should make your mental abilities, conversations and overall life, richer.
not rated yet Mar 24, 2016
Maybe rich people do not appreciate knowledge? The most people value practical aspects of live, but wise people often are more spiritual than practical.
Mar 24, 2016
This comment has been removed by a moderator.
not rated yet Mar 24, 2016
I had hoped that my education would give me skills and make me attractive enough to employers to increase my lifetime earnings, but now, as I enter my 50s, I see that isn't going to happen. I have a slightly greater understanding of how some things that are immediately relevant in my world work, but I'm painfully aware that I can barely learn about the appearance of new technologies as fast as they happen, much less master them before they become obsolete.
not rated yet Mar 25, 2016
I was in the school cohort in 1972 that had to stay on the extra year--those not intending to get qualifications resented it bitterly. Research now shows they indeed got kicked in the head--no wonder so many left the UK to make their success elsewhere.
5 / 5 (2) Mar 25, 2016
In my 30s I considered going back to university and doing a PhD. Then I worked out the costs, factored in lost earnings

Did the same at age 35. Said "screw the lost earnings - money can't buy me what working on a PhD can give me" Got the PhD. Never regretted the decision.

Yes, it's a few years where you don't earn much, but afterwards you earn more. While this may not compensate over the rest of my working years for the loss - that time certainly helped keep my needs modest (i.e. the salary I get now stretches such a long way I honestly don't know what to do with the money)

There's a point when more money doesn't make one happier. But there's no point where more knowledge doesn't make you more happy.
5 / 5 (1) Mar 25, 2016
This reminds me of a study that showed that if a given person goes to an elite college or goes to any other college, they end up earning the same. The fact that Harvard grads, say, earn more than state school grads is only because the intelligence of Harvard students is on average higher, due to the screening process.

The study was done by comparing students who were accepted but turned down the offer with those that accepted.

The upshot is that a person's inherent abilities will determine their earnings, not the quality of their college experience.

The present study seems to take that one step further. That person may actually earn more by not going to college at all.

as a person who hires software developers, I can tell you I don't care what education they have. I give them a programming test to see if they can program or not.

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