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Degrees of Poverty: The Relationship between Family Income Background and the Returns to Education

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Abstract
Drawing on the Panel Study of Income Dynamics, we document a startling empirical pattern: the career earnings premium from a four-year college degree (relative to a high school diploma) for persons from low-income backgrounds is considerably less than it is for those from higher-income backgrounds. For individuals whose family income in high school was above 1.85 times the poverty level, we estimate that career earnings for bachelor’s graduates are 136 percent higher than earnings for those whose education stopped at high school. However, for individuals whose family income during high school was below 1.85 times the poverty level, the career earnings of bachelor’s graduates are only 71 percent higher than those of high school graduates. This lower premium amounts to $300,000 less in career earnings in present discounted value. We establish the prevalence and robustness of these differential returns to education across race and gender, finding that they are driven by whites and men and by differential access to the right tail of the earnings distribution.

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  • Timothy J. Bartik & Brad J. Hershbein, 2018. "Degrees of Poverty: The Relationship between Family Income Background and the Returns to Education," Upjohn Working Papers 18-284, W.E. Upjohn Institute for Employment Research.
    • Handle: RePEc:upj:weupjo:18-284
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    Cited by:

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    3. Thompson, Debora V. & Hamilton, Rebecca W. & Banerji, Ishani, 2020. "The effect of childhood socioeconomic status on patience," Organizational Behavior and Human Decision Processes, Elsevier, vol. 157(C), pages 85-102.
    4. Sara Goldrick‐Rab & Marshall Steinbaum, 2020. "What Is The Problem With Student Debt?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 534-540, March.

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    More about this item

    Keywords

    inequality; return to education; career earnings profile; PSID; low-income;
    All these keywords.

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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