How much is an education really worth?

This month, the autumn equinox marks a shift in seasons, Virgo and Libras take center stage in astrology, and many around the world are preparing for a new school year, either as students themselves or parents to students. As academic corridors fill with eager learners and campuses buzz with renewed energy, it’s also a time to consider the impact education has in shaping the economic trajectories of those students.

Joshua Angrist, a labor economist and econometrician, has spent much of his career studying the relationship between education and earnings. An examination of his work reveals a blend of meticulous analysis, instrumental variables, and a quest for causality. “Returns to schooling are a very important question in my field of labor economics. We’re interested in who earns what and why,” says Angrist. “There's a lot of randomness in earnings outcomes, but there are some systematic correlates and one of the most important is education.”

The way Angrist and other economists measure returns to schooling is in terms of years, using similar language as a return on investments. Angrist and others ask questions like ‘If you spend one year in school, how much more do you earn later?’ and the more pressing, ‘Should I invest in education?’ While these may seem like hard numbers to crunch – and they are – labor economists ultimately have succeeded in answering them.

“The correlation is on the order of 10 percent higher wages per year,” says Angrist. “College graduates earn something like 60% higher wages than high school graduates.” The substantial wage gap highlighted here not only underscores the allure of higher education but also presents a conundrum to policymakers and educational institutions alike. How should societies interpret and act upon this data?

One of the classic questions in his field, and one that Angrist worked on early in his career, is the effect of smaller class sizes in schools. “And why is that an economics question,” he asks. “As labor economists, we’re very interested in public goods and the way society provides for things like education that are mostly provided by governments as opposed to individuals in the market. We’re interested in the efficiency of that process and that brings us to the costs of providing education.”

One of the major determinants of the costs of education are the number of teachers and how much they're paid. Smaller class sizes require more classes and more teachers. In the US, Angrist says it’s a topic of vigorous debate about whether smaller class sizes are worth pursuing. “If you just compare kids who are in bigger versus smaller classes, you'll see that generally the kids in bigger classes have better outcomes, they have higher test scores. So you might conclude from that that not only is it not worth reducing class size, but maybe big classes are better,” he says. “That's a correlational fact, it's just a simple comparison.”

More recently, Angrist completed a randomized evaluation of financial aid for college and university students. In the US, Angrist’s home country, post secondary education is notoriously expensive. The high cost of schooling creates a barrier, particularly for those from lower income backgrounds or whose parents themselves didn’t go to college. “We studied a program based in Nebraska that funds post-secondary education for lower income, but very promising, students and we look at the effects of that funding on degree completion,” he says. “It’s actually a randomized trial and that’s not something I get to do very often. In my world, randomized trials are ideal.”

Angrist has been drawn to pockets where good experiments in the returns to schooling domain can be conducted. In many American and European school districts there’s an element of random assignment that decides who goes to school where. Some larger urban districts use algorithms to assign students and while these algorithms are “reasonably complicated” as Angrist puts it, they include a level of random assignment that allows for experimentation.

“Where will I go to school is a great question,” he says. “And somewhere in there, there’s an experiment and somebody just has to figure out how to get to it.”

As economies evolve and societies strive for equitable growth, the insights derived from Angrist’s work encapsulate the essence of education’s role, positioning it as not only a personal pursuit, but a cornerstone of economic advancement.