What Matters Most in the Labor Market? A Degree or Skills?

Hypothetically, if you had to choose between having a college degree in one hand and writing and math skills in the other, which would you choose? The degree signals to employers that you’re a potential job candidate, while the skills provide a higher probability of future career success and higher earnings. What do you do?

A new report, “Skills and Earnings in the Full-Time Labor Market,” suggests that the emphasis for students needs to be on gaining the foundational literacy and numeracy skills that will be rewarded with higher earnings in the full-time labor market, not on simply getting a diploma.

The authors of the report cautioned that when the goal is simply educational attainment, there is a risk of “overemphasizing policies designed to increase the level of educational attainment of the population with little regard to developing basic skills in that education process.”

“This study raises important questions about the relationship between education credentials and skills attainment,” said Paul Harrington, Ph.D., Director of the Center for Labor Markets and Policy at Drexel University, and one of the report’s authors. “It indicates that a college education accounts for only part of the earnings premium of college-educated workers over high school graduate counterparts.”

Harrington and co-authors Neeta Fogg, a research professor at Drexel, and Ishwar Khatiwada, an economist at Drexel, argue that reliance on educational attainment as a “stand-in” for skills may not be wise. They found that there was a large range of literacy and numeracy skills among full-time workers, even for those with the same level of educational attainment.

In addition, the report shows that once literacy and numeracy skills have been accounted for, there is little earnings advantage (in the full-time labor market) to attaining an associate degree or a short-term certificate, and no earnings advantage to completing some college, but no degree, compared to workers whose highest level of education is a high school degree.

The new data suggests that spending more on education doesn’t necessarily translate into a higher skill level for students. “Across core domains such as reading, math and scientific literacy, we see aggregate skill levels among student and adult populations that are flat or in decline in spite of increases in educational spending and attainment,” said Irwin Kirsch, Director of the ETS Center for Research on Human Capital & Education, which commissioned the study.

Nearly 7 out of 10 new high school graduates are attending college this fall hoping to earn a degree. But 36 percent of full-time workers in their prime (25–54) who had obtained an associate degree had low levels in literacy as did 18 percent of those with a bachelor’s degree and 13 percent of those with a master’s degree or higher. On the numeracy scale, the results are even more disappointing.

The research suggests that much of the difference in wages between college and high school graduates appears tied to cognitive skills, which are rewarded in the labor market because they improve worker performance.

In an earlier report, “Too Big to Fail: Millennials on the Margins,” it was shown that a major shift in the structure of the economy had left nearly half of America’s millennials without the literacy and numeracy skill levels they needed to compete successfully in the work force.

All findings are based on analysis of the Survey of Adult Skills of the Programme for the International Assessment of Adult Competencies (PIAAC), an international assessment measuring achievement for countries across the world.

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