THE PREVALENCE AND EFFECTS OF FORMAL SCHOOLING

• A Note on Nontraditional Students:
  The Effects of "Late" Credentials

Table 1
Educational Attainment:
Individuals Age 25-64 with Earnings

In Table 1, one can see the slow changes in educational attainment that have been taking place in the United States. The proportion of individuals in the labor force[12] with less than a high school diploma has dropped, especially among women. There has been a slow but steady increase in the proportion of individuals with postsecondary credentials of all kinds, among both men and women, though the proportion of women with baccalaureate and graduate degree still lags behind that of men. In the middle of the education distribution, the proportion of men with high school diplomas and some college has been steady, while it has been rising among women. This is part of the longer-term increase in the educational qualifications of the labor force, a phenomenon that has been underway for at least a century and one that is responsible for the increase in the importance of decisions about postsecondary education.

Table 2 presents mean earnings for different educational levels for all three years. With a few anomalies--for example, the low earnings for women with Ph.D.s in 1984--these figures describe an increasing effect of education, with apparently substantial benefits to sub-baccalaureate credentials compared to high school diplomas. However, these simple means are uncorrected for the effects of any explanatory variables.

Table 2
Mean Annual Earnings, By Levels of Education:
Individuals 25-64

Table 3 presents the coefficients describing the effects of schooling controlling for various other independent variables (whose coefficients are presented in Appendix Table A-3) for all three years. In general, these results suggest a uniformly increasing effect of education, as one might expect.[13] Those with professional degrees--which include medical and law degrees--enjoy the highest premium over high school graduates, followed by Ph.D.s, Master's degrees, and baccalaureate degrees. Associate degrees have significant returns for both men and women, though not surprisingly lower than the returns to baccalaureate degrees[14]--though the difference between the returns for baccalaureate and Associate degrees is smaller for women than for men in all three years.[15] The returns to vocational certificates are smaller still, though statistically significant, and, of course, those with less than a high school diploma earn one-quarter less than those who have completed high school.

Table 3
Effects of Postsecondary Education on Annual Earnings
Individuals 25-64, SIPP Data

In considering the group with some college but no credentials, the results are somewhat less clear. For women, the effects are generally insignificant, though some coefficients that are significant are generally for larger amounts (3 or 4 years) of postsecondary education. I conclude that entering postsecondary education, but failing to complete a credential, does not improve earnings reliably, unless perhaps a woman has three or four years of college. For men, the results are somewhat more positive. A small amount of postsecondary education (less than one year) has no effect in 1987 or 1990, but it does have a small effect in 1984; moderate amounts (1-2 years) have benefits similar to certificates, while more substantial amounts (3-4 years) provide benefits about equal to those of an Associate degree. Therefore, noncompleting men may benefit from completing some postsecondary education; but there seem to be "program effects" (or "sheepskin effects") from completing credentials, since 1-2 years of postsecondary education without a credential are equal to a one-year certificate, and 3-4 years are roughly equivalent to an Associate degree which requires two years of full-time schooling. Finally, very small amounts of college attendence--for example, the amounts that individuals accumulate when they take a few courses for a semester or two--are unlikely to benefit either men or women.

Another way to see the existence of "program effects" is to compare the benefits of a baccalaureate degree with four years of some college, the benefits of an Associate degree with two years of some college, and of a certificate with one year of some college. Of these eighteen comparisons in Table 3, the benefits of credentials are higher than the benefits of the equivalent years of college without credentials in all but three cases;[16] for example, for men in 1987, the return to a B.A. is .394 compared to .256 for those reporting four years of college without a credential, while the return to an Associate degree is .215 compared to .123 for those with two years of college. Within the limits of the self-reported information available in the SIPP,[17] then, there appear to be "program effects" associated with completing postsecondary credentials.

Contrary to expectations, there are no obvious trends in the coefficients across the period from 1984 to 1990. Some patterns are U-shaped; others are monotone decreasing while a few are monotone increasing, but the kind of consistency that would be necessary to establish a trend, given the difficulty of finding any parameter differences significant, is absent. Therefore, these results, which reflect differences among education groups controlling for many other independent variables, do not corroborate the evidence that simple differences among education groups have expanded during the 1980s and are responsible for much of the increasing inequality in earnings (Grubb & Wilson, 1991; Levy & Murnane, 1992; Murphy & Welch, 1989). Whether the disagreement in these results is due to a difference in data sets or in analytic methods is unclear and merits further investigation.[18]

In general, the returns to postsecondary education in these results are comparable to those from data sets constructed in the same way, though other data generates results of quite different magnitudes. For example, in the NLS72 data, where transcripts on education are available, the returns to a baccalaureate degree are about 9.6% for men and 12.6% for women,[19] substantially lower than the returns of about 40% and 30% in Table 3. Similarly, the returns to vocational Associate degrees in the NLS72 data are zero for men and 9.2% for women, compared to SIPP results of 21.5% and 23.4% in Table 3 (with roughly similar returns for younger cohorts in Tables 7 and 8). However, the returns to education in the NLS-Youth data, which depends on self-reported information about education, are, if anything, higher than the returns estimated from SIPP data: Kane and Rouse (1993) estimate returns to baccalaureate degrees of 42% for men and 51% for women, while the returns to Associate degrees are 24% and 31% respectively. There are at least three plausible reasons for these differences: (1) The use of self-reported data with the SIPP and NLS-Youth biases the estimated returns upward as compared to the transcript-reported data of NLS72; (2) The absence of measures describing ability and academic achievement in the SIPP also biases these estimates upward as compared to NLS72 data; and (3) The inclusion of all ages in the SIPP data, rather than as one cohort in NLS72 or a few young cohorts as in NLS-Youth, increases the estimated benefits.[20] However, this last explanation does not appear to be a particularly powerful explanation of the differences because the results in Tables 7 and 8 disaggregated by cohorts--that is, by ten-year age groups--reveal that the estimated returns are relatively constant over age groups, rather than show an increase with advancing age.

However, it is plausible that the SIPP estimates are relatively high because of the first two reasons. In turn, this implies that certain parameter estimates--particularly those for certificates and small amounts of some college, which are typically in the range of 12% to 16%--might be much smaller if measures of ability and more accurate transcript-reported measures of schooling were available and might even be small enough to be statistically insignificant. Because these parameters are consistently positive, this does not necessarily imply that benefits to certificates and small amounts of postsecondary education are in fact zero. Instead, a plausible interpretation is that there is sufficient uncertainty in the returns--from differences among fields of study (examined in the next section), from variation in local economic conditions, from the quality of educational institutions and the strengths of their connections with labor markets--that some individuals receive no benefits, while, for others, the benefits are substantial.

A Note on Nontraditional Students:
The Effects of "Late" Credentials

In general, these nontraditional patterns have been praised for giving students greater flexibility and for being consistent with the goals of "lifelong learning." However, there are several potential dangers to nontraditional attendance. One is simply that students entering "late," or "stopping out," are less likely to complete credentials than are those going through college in more conventional ways. Moreover, as the results in Table 3 indicate, noncompletion carries a penalty, especially for women. The other is that, even for those who complete credentials, "late" completion may not provide equivalent economic benefits. There are several reasons why this might be true. Given the fact that entering and completing college programs right after high school is still the norm, those attending in nontraditional ways may lack the motivation, the persistence, or the support of their families, that traditional students have. In addition, employers may consider "late" completion as evidence of weak motivation or persistence. Alternatively, the pattern in which students complete credits over longer periods of time may result in less coherent programs of study (V. Smith, 1993), in turn making these individuals less competent. Older students, more likely to have employment and family responsibilities, may also pay less attention to their studies. On the other hand, one could argue that older students are more motivated, since they are more likely than 18-year-olds to know why they want to attend postsecondary education and more focused in their efforts.

It is a simple matter to test whether receiving postsecondary education later than is usual leads to higher or lower returns by creating a series of binary variables for those individuals receiving credentials "late." Table 4 presents the coefficients for these variables, describing the effects of certificates, Associate degrees, baccalaureate degrees, and some college (without a credential) when these are received between the ages of 24 and 30 and later than age 30. If there is a penalty associated with receiving "late" credentials or coursework, then these coefficients should be negative.

For men, the coefficients are uniformly negative but insignificant. There may be a small penalty for "late" postsecondary education, then, but it is too small, on the average, to render reliable information regarding its magnitude, and, in any event, it is much smaller than the earnings differences associated with credentials themselves. For women, however, six of the eight coefficients are positive, and two of them--for Associate and baccalaureate degrees received after age 30--are statistically significant.[21] Furthermore, the magnitude of these effects are quite substantial. The return to an Associate degree is 12.3% for those receiving the credential before age 24,[22] 27.6% for those receiving the credential between 24 and 30, and 47.7% for those receiving it after age 30. Comparable figures for the baccalaureate are 29.8%, 25.7%, and 53.6%.

These results suggest that, in general, there is no economic barrier to using postsecondary education in nontraditional ways. In particular, for women attending college at older ages--often labeled "re-entry" students--there are substantial additional benefits, compared to those available to their conventional-age peers.

Table 4
Effects of "Late" Credentials and Coursework,
1987

[13] Throughout these results, the problem of statistical significance appears over and over. Many of the coefficients in Table 3 are statistically significant at the conventional 5% level, meaning that earnings are higher for an individual with an Associate degree, for example, compared to the omitted group with a high school diploma. But differences between coefficients are often not significant, even when they are part of a clear pattern. For example, for men in 1987, there is a monotonic increase in the coefficients for certificates, Associate degrees, baccalaureate degrees, Master's degrees, and professional degrees--but the difference between coefficients for certificates and for Associate degrees is not significant, nor is the difference between those for baccalaureate and Master's degrees. However, it seems foolish to conclude that Associate degree holders earn no more than certificate holders--or, strictly speaking, to fail to reject the null hypothesis that both groups earn the same amounts--because the coefficients are part of a larger pattern, and because four of the six comparisons between these two groups show that Associate degree holders earn more (two of which are statistically significant). I conclude, therefore, that the preponderance of the evidence indicates that an Associate degree is worth more than a certificate. In general, I report results in this monograph that are supported by this abundance of evidence, recognizing that individuals who are obdurate about statistical significance will be uncomfortable with some of my conclusions.

[14] Some authors (e.g., Brint & Karabel, 1989) have implied that the less significant benefits of an Associate degree compared to a baccalaureate degree, by themselves, constitute evidence that community colleges and technical institutes provide restricted opportunities to their students. But of course an Associate degree typically takes half as long to complete as a baccalaureate; both the direct costs (tuition) and the opportunity costs (the earnings foregone) are lower, the latter because it is easier to attend community college part-time and not disrupt employment. Thus, the internal rate of return to an Associate degree could be higher than for a baccalaureate, though I have not carried out the calculations necessary for this determination.

[15]Anticipating the results of a subsequent section, this result may be due to the fact that a higher proportion of women at the baccalaureate level are in fields of study with lower returns--the humanities and education, for example, rather than engineering and natural sciences.

[16] For men in 1987, the benefits of one year of college (.161) are about equal to the benefits of a certificate (.146); for women in 1984, the benefits of four years of college (.378 percent) are equal to those of a B.A. (.355); and for men in 1990, the benefits of a certificate are lower (.063 and insignificant) than those of one year of college (.093 and significant). To be sure, many of the fifteen differences associated with "program effects" are not statistically significant, but the consistent direction of the difference lends support to the idea that there are program effects.

[17] That is, it is possible that the amount of postsecondary education reported as two years, for example, is generally two years part-time and therefore substantially less than is required for an Associate degree.

[18] In a subsequent paper, I will compare the results of Theil's measure of inequality, calculated with SIPP data, with the simple and controlled differences in earnings among education groups. One possibility, from recent analysis of Current Population Survey (CPS) data which extended to 1992 and was undertaken with Robert Wilson, is that the increasing inequality in earnings during the 1980s began to reverse itself in 1987 or 1988, so that the 1990 SIPP results reflect a year of decreased inequality as compared to 1984 and 1987.

[19] These are taken from unpublished semi-log forms corresponding to the linear functional forms in Grubb (1995a).

[20] An alternative is that the inclusion of all ages increases the error in some of the independent variables, particularly those describing socioeconomic status, whose effects are weaker in the SIPP results than in the NLS72 results due to the survey respondents' failure to remember details when asked about certain educational events of the past.

[21] In these results for women, of the 292 Associate degrees, 65 were earned between ages 24 and 30, and 62 after age 30; of the 784 baccalaureate degrees, 150 were earned between 24 and 30, and 83 after age 30.

[22] This coefficient is lower than that in Table 2, and statistically insignificant (s.e.=.076), once the dummies for late credentials are included.