We've known for years that low-income college graduates earn less after graduating than their higher-income peers. A new paper Who Weathers the Storm from the National Bureau of Economic Research digs into a 20 year data set to try to better understand why.
Studying 80,000 tradition-aged students who graduated from college between 2010 and 2017, the researchers then also collected data on income at five and ten years after graduation. This is not a study comparing elite and low-income students. The students were all graduates of a multi-campus public university system. "Low-SES" student was defined as receiving Pell grants every semester while in college. "High SES" students never received Pell grants. The middle group got Pell grants for some but not all semesters.
Controlling for campus, major, prior record of academic achievement, and GPA, the study confirmed what prior studies have found: the low-SES students were earning substantially less at the five and the ten year marks.
The paper delves into the "rocky transitions" from college to the first job for low-income students and suggests that first-generation students never recover from lower salaries in first jobs. These students were more likely to be in debt with first payments looming and had less cushion from family; thus they may differ from peers in accepting positions earlier in the search rather than being able to wait for a better offer. Possibly, they accept a livable starting salary in positions with less potential for promotion because they need to start earning money.
Weathering the Storm, the paper's title, refers to how stressful that transition from college to work is for many students, even in healthy economies:
Among the 2017 graduating cohort, for example, nearly one in four graduates had earnings below the poverty line in Year 1, and a little more than one in four experienced at least three months in Year 1 with no earnings (both figures set aside the first 6 months when many graduates have not yet started a job).
Students without family financial support during these transitions, without networks that offer experience via internships, or without access to insider information about jobs will clearly struggle more than their peers in the "storm" of finding first jobs.
But the authors also wanted to better understand the persistence of income gaps at the five and ten year career points.
Their data showed two somewhat unexpected trends: low SES graduates earn less than higher SES graduates employed at the same firms. Compounding the gaps within organizations, firms offer different salaries for the same starting positions those more likely to hire low SES graduates offered lower starting salaries than firms hiring high SES students.
Over time, gaps in starting salaries grow wider:
... low SES graduates earn about 12% ($8,800) less on average than non-recipients in Year 5, with the gap growing larger over time but bouncing around a bit in percentage terms, from 16% ($6,200) at year 1 to 15% ($14,500) at year 10.
In short, low-SES students graduating from college with the same qualifications as their more privileged peers are, on average, earning hundreds of thousands of dollars less over their careers than high-SES peers.
As economists crunching large data sets, the authors did not try to explain what happens as firms screen applicants, interview candidates, and then negotiate salary. They did not talk about how candidates are then evaluated for potential raises based on "fit" and success in the workplace.
But even in healthy job markets, low SES students will face short-term pressures to accept any jobs regardless of the long-term advantages of waiting for something better. The authors of this study suggest exploring financial support for students transitioning from graduation to first professional job, and it seems that small investments could have substantial effects on long-term salaries.
It can be hard to imagine equitable outcomes for equally qualified college graduates without such supports. We know that the long reach of parents' money gives some students access to quality K-12 schools, college admissions test prep, free time on campus invested in resume building rather than at fast food jobs. It seems that parents' money and networks also provide some students more leisurely and lucrative transitions to professional work after college and high lifetime earnings.
Perhaps, along with coaching students on interview skills and resume writing, campuses could also coach successful alumni to screen the merit of job applicants over and above proxies of relative family wealth that are masked as merit.
