What matters most to the labor market? A degree with skills
New research: Skills have a strong impact on earnings in the full-time labor market

Contact: Jason Baran                    Phone: 1-609-683-2428                    Email: mediacontacts@ets.org

Princeton, N.J. (Sept. 17, 2018) – This fall, nearly seven out of 10 new high school graduates will be heading to college, hoping to earn a degree, which is seen as the best path toward success in the labor market. While higher education generally does result in improved employment and earnings outcomes, a new study, “Skills and Earnings in the Full-Time Labor Market,” finds that reading, writing and math skills have a strong influence on the earnings of full-time workers. In addition, the level of these skills vary widely even within groups of full-time workers with the same level of educational attainment.

“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.”

An intriguing finding in the study is 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’s 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.

Based on their findings, Harrington, and co-authors Neeta Fogg, Ph.D., and Ishwar Khatiwada, argue that reliance on educational attainment as a “stand-in” for skills may be doing a disservice to individuals and the larger society. They found that the literacy and numeracy skills of full-time workers varied substantially, even among those with the same level of educational attainment. Thirty-six percent of full-time workers in their prime (25–54) who had obtained an associate’s degree performed at low levels in literacy. So 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 report suggests that heavy emphasis on simply increasing the number of persons with more advanced credentials may have reached a point of diminishing returns. Many graduates at the secondary and postsecondary level do not get the full earnings gains associated with the credential because they lack the foundational skills that are rewarded in the full-time labor market. The authors caution that when the goal is 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.”

Irwin Kirsch, Director of the ETS Center for Research on Human Capital & Education, which commissioned the study, agrees. “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.”

Kirsch’s point is that a college education accounts for only part of the earnings premium of college-educated workers over high school graduate counterparts. According to this research, the balance of the wage premium appears to be tied to cognitive skills, which are rewarded in the labor market because they improve worker performance.

The authors’ 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. They used data for the United States from 2011–2014.

“Skills and Earnings in the Full-Time Labor Market,” was written on behalf of ETS’s Center for Research on Human Capital & Education. It is the first in a series on The Impact of Human Capital in the American Labor Market. To download or read the complete report please visit: https://ets.org/research/report/earnings-full-time-labor-market/.


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