The Rate of Return to Pursuing a Bachelor's Degree

Project Date:
Jul 2012
Award Amount:
$7,000
Project Programs:
Future of Work

The debate over the value of a college education has been ongoing for decades. Proponents, including President Obama, articulate both the private and public need for expanding higher education, arguing that tomorrow’s good jobs will require advanced training. However, critics argue that higher education increasingly ignores workforce needs and expanding undergraduate programs would be a waste of resources, both for the students and for society, as already too many young people currently have a Bachelor’s degree (BA). Today’s debate reflects in part the grinding recession. Between 2007 and 2012, the unemployment rate for young college graduates increased from 7 percent to 9.4 percent while college costs continue to rise. At the same time, research shows that about 25 percent of all employed college-educated adults in the United States and closer to 40 percent of recent graduates work in non-college labor market jobs.

Levy seeks to understand the recent changes in the rate of return to pursuing a BA by analyzing California’s two public Bachelor’s degree granting systems, the University of California (UC) system and the California State University (CSU) system, both of which are seen as models for tertiary education in the U.S. and around the world. He hypothesizes that, even before the financial collapse, rising college costs were making higher education a risky investment, with declining returns for marginal students whose post-college wages may no longer be sufficient to sustain a middle class lifestyle. To test these theories, Levy will consider several factors that are usually omitted from estimates of the rate of return to pursuing a BA, namely the probability of dropping out without a degree, the fact that it may take more than four years to complete a degree, the uncertainty of post-BA earnings, which requires comparing the rate of return to college to the return on equally risky assets, and the role of taxes in lowering earnings. Using these variables and others, he will estimate individual and social internal rates of returns to pursuing a Bachelor’s degree for the UC system versus the CSU system and for the average student versus the marginal student.

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