Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?

Abstract

ln CPS data, the 20% of the civilian labor force with 1-3 years of college earn 15% more than high school graduates. We use data from the National Longitudinal Study of the High School Class of I972 which includes postsecondary transcript data and the NLS Y to study the distinct returns to 2-year and 4-year college attendance and degree completion. Controlling for family income and measured ability, wage differentials for both 2-year and 4-year college credits are positive and similar. We find that the average 2-year and 4-year college student earned roughly 5% more than similar high school graduates for every year of credits completed. Second, average bachelor and associate degree recipients did not earn significantly more than those with similar numbers of college credits and no degree, suggesting that the credentialling effects of these degree are small. We report similar results from the NLSY and the CPS. In addition to controlling for family background and ability measures, we pursue two IV strategies to identify measurement error and selection bias. First, we use self-reported education as an instrument for transcript reported education. Second, we use public tuition and distance from the closest 2-year and 4-year colleges as instruments, which we take as orthogonal to schooling measurement error and other unobserved characteristics of college students. Although research over the past decade has been preoccupied with selection bias, the two biases roughly cancel each other, suggesting that the results above are, if anything, understated.