Just how valuable is an education over the course of an individuals career? That is the question I seek to answer throughout this post. It is a worthwhile question to answer because many people know instinctively that higher education is correlated to higher incomes, but most people don’t know the absolute dollar value of increased earnings power based on a level of education over the course of a career.
The Data
The best data that I could find on the relationship between education level and income was found on Statistics Canada. Stats-Can has data from the 2006 census which breaks out median income based on education, age group and sex for the entire country as well as broken down by metropolitan area. Although 2006 census data is a bit dated I think it will still be accurate enough to depict the value of different levels of education.
Education vs. Median Income
The following data represents median (before tax) income levels based on the highest education level achieved. The data is for both male and female sexes for all of Canada.
Some obvious trends to point out is that income increases with education level and income increases with age as you gain more experience.
However the magnitude of how much earning power increases with age across different education levels is quite interesting. In the 25-34 age group an individual with a post graduate degree only earns 175% of what an individual with no high school diploma earns. By age 55-64 however that individual with the post graduate degree is earning 237% of what the individual with no high school diploma is earning.
Life Time Value
For simplicity I am going to keep everything in today’s dollars and not future value the median incomes numbers to take into account inflation which would drive nominal wage increases over time.
You can view my spreadsheet calculations here.
As you see in the chart above an individual with a post-bachelor degree will earn approximately $1.4 million dollars more over the course of a 40 year career then someone without a high school diploma. A University bachelor degree will earn about $1 million dollars more over the course of their lifetime then someone without a high school diploma. The largest increase in career earnings per education level achieved seems to be from the University below bachelor level to a University bachelor degree. If you are currently in university and are debating whether it is worth it to complete the 4 bachelor degree the numbers say it is definitely worth it.
Things To Consider
All my calculations were performed using before tax (gross) incomes. Since Canada has a marginal tax rate system the higher income earners with higher education levels will have their after tax income diluted by paying a higher proportion of their before tax income in taxes at higher marginal tax rates. However this is partially offset by the fact that higher income earners with higher education levels will on average invest a higher proportion of their after-tax income which will further increase their future income whereas individuals with lower earnings may not have this opportunity.
Another big thing to consider is the cost to obtain the education. Some post graduate programs take years to complete after a bachelor degree and can cost over a hundred thounsand dollars in tuition. To determine if someone is actually better off by achieving a higher level of education you must consider that a proportion of their higher income will go to pay for their education costs. To make the calculation more complex you must also consider that the government offers tax credits for education costs which will offset a proportion of the tax that a higher educated, higher income earner would have to pay once they begin generating an income.
Conclusion
Based on the numbers it seems very worthwhile to pursue higher levels of education as the difference in career income between education levels is quite substantial.
Tags: Cost of Education, Education Savings, Value of Education
