Hired Learning

Why education pays off

Over the past two decades, the economic rewards to education have skyrocketed. According to 1992 Census data, the average college graduate earned about $33,000 a year, while high school grads averaged only $19,000. Most economists believe the differential is growing because college grads learn the sorts of skills that are increasingly valuable in a knowledge economy. But some policy wonks see the gap as part of a zero-sum game in which educated workers get bigger and bigger slices of a static (or shrinking) pie.

In "Technology and the Wage Structure," a recent working paper from the National Bureau of Economic Research, Steven G. Allen documents a similar wage differential among college graduates. Using data from 39 industries, Allen, a professor of economics and management at North Carolina State University, compared indicators such as research-and-development intensity, the ratio of scientists and engineers to less-skilled workers, and wage estimates. On average, he found that returns to schooling rose from 5.7 percent in 1979 to 8 percent in 1989. But Allen's analysis also revealed that returns to schooling were significantly higher in industries with rising R&D activity and intensive use of high-tech capital Returns in the medical industry, for example, were more than 3 percent higher than average.

Allen's data also suggest that while "technology variables" are associated with higher wages for college students, those changes are not related to the wages of less-educated groups. So, although the wage gap has become a cause for alarm in some circles, the increase in returns to skilled and educated labor doesn't appear to be coming at the expense of less-skilled labor.