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Does Higher Education Really Increase Economic Mobility?

It’s hard to believe that it was only three years ago this month that the publication of Thomas Piketty’s Capital in the Twenty-First Century focused attention on growing income inequality as a major economic and social issue. The last election removed any doubt that it is a major political issue as well.

College graduates have always made more money than people with a high school diploma or less, so there is no surprise about the direct relationship between higher education and income inequality. But college has also always been seen as promoting economic mobility—assuring that people have the chance to move up the economic ladder so that inequality is not locked in across generations. But recent data paint a worrying picture. First, economic mobility in the United States is now below that of most developed countries, suggesting the American Dream is becoming a myth. Second, as skill demands increase across the economy, opportunities for good jobs are disappearing for those without education beyond high school.

But all this leaves an open question: Is higher education really an engine of economic mobility? Maybe what you learn in college isn’t important. Perhaps all that matters is what the prestige of the school you graduated from signals to employers—not to mention potential mates—about your class origins. Students who go to elite schools that people often believe lead to higher-paying careers tend to be better-off to begin with. If all of this is true, higher education only perpetuates economic class distinctions and doesn’t contribute at all to economic mobility.

Fortunately, there is fresh evidence that college can increase mobility. A new paper, Mobility Report Cards: The Role of Colleges in Intergenerational Mobility, has received a lot of media coverage from outlets such as The New York Times, The Economist, and Huffington Post. There are two headlines from the study. First, poor students who go to elite institutions earn almost as much after graduation as rich students, but very few poor students get into elite institutions. Second, a group of mid-tier institutions, including schools such as California State University, Los Angeles, and the City College of New York are important contributors to economic mobility because their graduates earn incomes similar to those who emerge from elite universities, but these mid-tier institutions enroll many more students from low-income families.

The study is worth a look. The research was a massive undertaking sponsored by the IRS and funded by a group of foundations, including Gates, Russell Sage, and Robert Woods Johnson. They used IRS and National Student Loan Data System data and looked at all students, and not just those eligible for Pell grants. The cohorts they used let them look at earnings of graduates between the ages of 32 and 34, which is both unusual and significant. The authors calculated a “Mobility Index” to measure the success of every college and university in the United States in moving students from the lowest 20 percent of incomes to the highest 20 percent.

The finding that is most important is that higher education is, in fact, an engine of upward mobility. While rich students earn more after graduation than poor students, the gap is quite small. Between students from the highest- and lowest-income families, it’s only 7.2 percentage points. That's 76 percent less than for the nation as a whole. Furthermore, this is true even among less-selective institutions. Here’s where the other important takeaway comes in: The analysis shows that this index varies significantly across institutions with the same level of admissions selectively. Certain institutions are getting the job done by closing gaps in attainment and increasing equity in the society.

There are two points we should keep in mind as we work to reduce economic inequality. The first is that more Americans need to earn education credentials after high school. The second is that if all colleges and universities did what the mid-tier exemplars are doing, the American dream would become a reality for millions more people.