Education and Lifetime Earnings, Term Paper Example

The recent financial crisis produced unemployment figures in the United States that had not been seen in years and despite the U.S. government’s best efforts, the recovery in the job market has been slower than expectations. To this day, addressing high unemployment rate continues to be one of the top priorities of the government. Though the situation has improved a little in the last few years, there is still much work to do. It was reported earlier this year that the nation’s unemployment rate had fallen to its lowest level in the last three years but the article also noted that most of the fruits of the recovery in the job market were being enjoyed by the college graduates. Even though the employment prospects for college graduates have slightly improved, those with high school diploma or less have not seen any improvement in job opportunities (Fletcher). This is why I have decided to explore the idea of education impact on lifetime earnings. This paper primarily focuses on the article How Higher Education Affects Lifetime Salary by Brian Burnsed that appeared last year in August on the U.S. News website (Burnsed).

The article reports that everyone with at least an undergraduate degree earns significantly more than someone with a high school degree over lifetime. According to the article, those with undergraduate, graduate, doctorate, and professional degrees earn $2.27 million, $2.67 million, $3.25 million, and $3.65 million, respectively over their lifetime while their counterparts with high school diploma and some college earn only $1.30 million and $1.50 million, respectively during the same period. The report does mention that women earn less than men on the average and similarly those from minority earn less than their Caucasian counterparts (Burnsed). But assuming everything else remains constant, those with college degrees do earn significantly more than those without college degrees over the lifetime. I agree with the article’s implications because it is only reasonable that earnings should be positively related to one’s academic credentials and the argument can be supported through the economic principles of demand and supply. In addition, we will also use the principles of elasticity of demand and supply to demonstrate why those with specialized academic background earn more.

To help explain why academic degrees result in higher income, we will use the examples of a medical physician and a construction helper. First of all, there is a lot more supply of construction helpers in a job market as compared to physicians. Becoming a construction helper doesn’t require any specialized skills and anyone willing to do manual labor can be hired for the job. In contrast, one has to invest many years of education as well as obtain internship experiences in order to become a licensed physician. Thus, there are lot fewer people capable of performing the physician’s tasks as compared to that of a construction helper. Thus, the high supply of construction helpers keep their wage levels low as compared to physicians who are in limited supply. The same can be said for many other professions that mostly require college degrees. Similarly, the demand for an average physician’s services is lot higher than an average construction helper. Almost every one of us sees a physician many times over our lifetimes while most of us purchase or build only one house in our lifetime. Even if we take commercial real estate developers, a single construction helper can only work on a single project at a time while an average physician sees many patients over the day. Thus, higher demand as well as lower supply for physicians’ services results in higher wages for them as compared to construction helpers. The graphs below show why physicians’ wages are higher than those of construction helpers. The graph on the left denotes higher demand and lower supply of physicians’ services as compared to that of construction helpers on the right graph, resulting in higher wages for physicians as compared to construction helpers.

We can also utilize the concepts of elasticity of demand and supply to demonstrate why physicians wages are more and why they increase at a greater rater than construction helpers over time. First of all, the demand for physicians is less elastic than construction helpers. People will demand physicians’ services whenever they are sick irrespective of good and bad economic times. But demand for construction helpers varies directly with the economy. When economy is booming and incomes are rising, there is higher level of construction activity and vice versa. Similarly, the supply of physicians is also less elastic than construction helpers. The supply of construction helpers can be quickly expanded in response to higher demand because one doesn’t need any specialized training to do manual labor. But it takes years before one becomes a licensed physician so even if the demand increases, the supply of physicians doesn’t change much, at least in the short run. As an article in the New York Times points out, doctors take eight or so years to learn to become doctors (Lieber). Thus, the result is higher wages for physicians because supply cannot keep up with the rise in demand. This also explains why those with college degrees earn more because there are fewer people with college degrees than those without college degrees and the supply of those with specialized academic background is more inelastic as compared to those with high school diploma.

The opponents may argue that the wage gap is not due to education because in some professions like oil drilling, even those with high school degrees earn a lot. Such an argument ignores the fact that many of these professions are highly specialized and require extensive on-the-job training and some also have higher pay in order to compensate for the risks involved in the jobs. When we argue that college degrees result in higher cumulative wages on the average over time, we assume that all other factors besides demand and supply remain constant. We also exclude professions where luck plays a huge role such as showbiz and professional sports. Another proof that college education pays off is that often within the same industries or even individual companies, those with college degrees and specialized education usually fill in higher-paid positions as compared to those without college degrees. Even real life experiences show that those with college degrees are on the average more economically affluent in America and in almost every other country as compared to those without college degrees.

It is obvious that college education pays off over lifetime because there are fewer people with college degrees and a lot more with high school diploma. In addition, the supply of workers with particular academic backgrounds is also less elastic as compared to their counterparts without college degrees.

References

Burnsed, Brian. How Higher Education Affects Lifetime Salary. 5 August 2011. 10 July 2012 <http://www.usnews.com/education/best-colleges/articles/2011/08/05/how-higher-education-affects-lifetime-salary>.

Fletcher, Michael A. Unemployment drop still leaves low skill workers behind. 6 February 2012. 10 July 2012 <http://www.washingtonpost.com/business/economy/unemployment-drop-still-leaves-low-skill-workers-behind/2012/02/05/gIQA5RSFvQ_story.html>.

Lieber, Ron. Investment Advice for Doctors: First, Do No Harm. 26 August 2011. 10 July 2012 <http://www.nytimes.com/2011/08/27/your-money/investment-advice-for-doctors-first-do-no-harm.html?pagewanted=all>.