Recent research from Tim Bartik and Brad Hershbein has drawn national attention for discovering that the college "earnings premium" is smaller for graduates who grew up in low-income families than for other college grads.
Bachelor's degree graduates who grew up in families eligible for free or reduced-price school lunches—with incomes of 185 percent of the poverty line or less—earned an average of $810,000 over their lifetimes. But average career earnings for bachelor's graduates from middle- and upper-class families reached $1.56 million, nearly twice what their peers from poorer backgrounds can expect.
But Bartik and Hershbein have also examined how the earnings gap changes by focusing on different subgroups, an analysis that offers clues for why the gap exists. They found that graduate degree holders and very high earners are likely to drive much of the difference. An analysis by race and gender suggests that whites and men drive the difference in earnings, which is consistent with the pattern of highly-educated, high-wage earners driving the gap, since men and whites have greater access to the most lucrative careers.
While college graduates who grew up in in lower-income families do see a return on their college investment in the form of higher lifetime earnings, those earnings gains alone do not appear to be enough to equalize economic opportunity. When it comes to accessing careers that propel workers into the highest parts of the earnings distribution, it seems individuals from poorer backgrounds may be encountering a glass ceiling that even a bachelor’s degree does not break. In fact, it may take more than free college for all—such as improved access to high-earning professions—for them to crack the glass.
"Simply increasing everyone's college education is not going to reduce most measures of inequality," Hershbein told Politico in August. As Politico argued in its story, the finding could dampen enthusiasm among policymakers for free college for all. This argument, however, assumes that reducing inequality is the principal goal of increased college attainment, or that free college for all will boost college attainment by the same amount for all groups.
Bartik and Hershbein, along with their colleague Marta Lachowska, have found that despite the lower earnings returns to college for individuals from low-income backgrounds, free college can still have high benefit-cost ratios for these individuals. For example, in a paper by these authors on the Kalamazoo Promise, which provides free or near-free college for all graduates from Kalamazoo Public Schools, the estimated effects of the Kalamazoo Promise program on college graduation rates of low-income students are high. Even with lower college earnings differentials for these students, each dollar invested in Promise tuition support increase the present value of future earnings for low-income students by at least $2. But this benefit-cost ratio would be much higher if the earnings returns to college for low-income students could be increased to match those from more advantaged backgrounds.
Policies such as free college that increase educational attainment for low-income students may pass a benefit-cost test, but they may also need to be accompanied by other policies to have larger effects on equalizing the income distribution.
Read Degrees of Poverty: Family Income Background and the College Earnings Premium, by Tim Bartik and Brad Hershbein
Read The Merits of Universal Scholarships: Benefit-Cost Evidence from the Kalamazoo Promise, by Tim Bartik, Brad Hershbein, and Marta Lachowska