Minorities See Smaller Gains from Increased Education

Thinkstock/George Kuna

This post is the second in a two-part series on the role that higher education may play in increasing racial and ethnic disparities in income and wealth. Today’s post looks at how the gains from college education differ across races and ethnicities.

Our previous post looked at disparities in the attainment of four-year college degrees among different races and ethnicities. In particular, African-Americans and Hispanics born after the baby boom have fallen further behind whites in terms of college-degree attainment rates.

Along with gaps in the “quantity” of education, there are also gaps in the “quality” of college degrees, according to a recent issue of In the Balance. Lead Economist William Emmons and Lead Analyst Lowell Ricketts of the St. Louis Fed’s Center for Household Financial Stability found that economic and financial returns from college degrees differ by race and ethnicity.

The authors examined two approximations of the quality of education:

• Comparing the median income of nonwhite families with similarly educated white families
• Comparing the median net worth of nonwhite families with similarly educated white families

The figure below plots the ratios of nonwhite family incomes in 2013 to their white counterparts by education level.

“The median family incomes of all nonwhite groups trailed their equally educated white counterparts’,” Emmons and Ricketts wrote. “Moreover, the generally declining relative incomes across increasing education levels among Hispanics and blacks suggest that the income gains associated with successive levels of education are lower for many Hispanic and black families than for their white counterparts.”

When using ratios of median net worth, disparities also appeared. (See figure below.)

The authors noted that the two figures suggest that both income and wealth gains from higher levels of education are generally lower for nonwhite families than for whites.

“These discrepancies generally grow at successively higher levels of education for Hispanics and blacks,” Emmons and Ricketts wrote. “Only at the very top is there some evidence of a reversal in this trend for wealth, although substantial gaps remain.”

“Education is not the great equalizer it once was—if it ever was,” the authors wrote.

The disparities in both college-degree attainment rates and the payoff of increased education “suggest that racial and ethnic income and wealth gaps are likely to grow larger in the future,” they wrote.

The authors emphasized that despite differences in returns, more education generally pays off for all races and ethnicities.

However, Emmons and Ricketts identified what they described as “two uncomfortable facts”:

• Successive generations of Hispanics and blacks are falling further behind their white and Asian counterparts in obtaining a four-year degree.
• The payoffs for greater education among Hispanics and blacks are generally lower than those for whites and Asians.

“As a consequence of these quantity and quality gaps, higher education unintentionally has become an engine for widening disparities rather than for accelerating the convergence of economic and financial opportunities across races and ethnicities,” Emmons and Ricketts concluded.

• In the Balance: College Inadvertently Increases Racial and Ethnic Disparity in Income and Wealth
• On the Economy: Will the Gender Pay Gap Get Smaller?
• On the Economy: Wealth Gaps Grow with Educational Attainment