The Payoff of Higher Education: Benefits from Expanding Enrollments at the University of Memphis

By Gnuschke, John E.; Wallace, Jeff | Business Perspectives, Fall 2004 | Go to article overview

The Payoff of Higher Education: Benefits from Expanding Enrollments at the University of Memphis


Gnuschke, John E., Wallace, Jeff, Business Perspectives


There are many reasons why people attend a university. Some are related to consumption and are linked to the desire to learn or encounter all the things that encompass the "university experience." Others view college as the pathway to a career, and the impact that attending a university has on lifetime earnings is a measure of success. For those people who are inclined toward viewing the university experience as a method to improve their productivity, economic impact analysis measures the cost and benefits of investments in higher education and calculates a rate of return that is comparable to the return on other investments. In general, investments in higher education for the individual and for society reflect some basic understanding that the returns to both the person and the state are sufficiently large to justify the expenditure.

It should be noted that not all education and not all learning occurs in a formal setting like a university or even a high school. Many people learn in the old-fashioned "school of hard knocks," and far too many others simply do not learn at all. Others learn on the job. The investment in job-specific learning is occurring at the workplace far more frequently than in the past. But by its very nature, employers and workers are investing in job-specific education and training because it pays off for one or both of the parties. Corporate universities are a new structure and a new model for delivering higher education and are an example of the traditional investment process taking another path. Similarly, online universities reflect a different delivery system for higher education and clearly meet the needs of some students.

The following tables contain some basic information on the incomes of people with various levels of education. Many different factors inherent in individual behavior, attributes, and the experience of going to work determine a person's income. But, general trends and correlations suggest that higher income levels and higher educational levels are at least highly correlated variables.

For example, while Table 1 shows a significant return simply for completing high school, an even greater return is available to those who complete a bachelor's degree or higher. In fact, the holder of a bachelor's degree earns nearly three times as much as someone who has not completed high school.

Table 2 shows lifetime income by educational investment level for men and women. Over a lifetime of work, beginning at age 25 for comparison purposes, an advanced-degree-holding male will earn more than five times as much as will a male who has not completed high school. Similarly, an advanced-degree-holding female will earn four times as much as her female counterpart who has not completed high school. Thus, the financial returns to the individual for investing in education make a tremendous difference in choices and standard of living, especially when considered over a lifetime.

In addition to receiving greater lifetime income than their less-educated counterparts, higher educated persons also are more likely to be employed. Table 3 shows employment rates by educational investment level. The data show substantially higher employment rates as the educational investment level rises. Over 97.0 percent of advanced degree holders were employed, while only 87.0 percent of persons without a high school diploma were employed during the same time period.

There are multiple benefits to an individual and society for investments in higher education. The state benefits in the form of higher taxes, while society benefits in the form of an educated population. While the tax benefits from having a higher income population may be obvious to legislators, the positive impact of having an educated society is frequently overlooked. Portions of this country have a history of investing more in education than do other areas. In many cases, the traditionally poorer areas of the country have a long history of under-investing in education at all levels. …

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