Labor Market Returns to Community College Awards: Evidence from Michigan

January 2015
Susan Dynarski, Brian Jacob, Daniel Kreisman, Mark Wiederspan, Peter Bahr, Alfredo Sosa, Ioana Marinescu, Eric Bettinger, Rachel Baker

Community colleges serve those whose labor market productivity is critical to national economic progress: first-generation college students, displaced workers, minority students, and low-income students. Yet we know relatively little about employment outcomes for students who leave these schools. Do community colleges provide the skills required to succeed in the workforce? Are the returns higher for some programs and courses than others? Do students benefit equally from each credit they earn, or does completing a degree or certificate provide an extra boost to earnings? Do students who receive initial education and training in specific occupations come back for further education to enhance their career pathways?

This paper examines the relative labor market gains experienced by first-time college students who enrolled in five community colleges in Michigan in 2003 and 2004. We track credentials, credits, earnings, and employment for these students through 2011. We compare labor market outcomes of those who earned a credential (associate degree or certificate) to those who enrolled but did not earn a credential. The data sources consist of administrative records data from the colleges, unemployment insurance (UI) earnings data from the State of Michigan, and enrollment and graduation data from the National Student Clearinghouse. Our analytic sample consists of 20,581 students.

We find that students who were awarded a long-term certificate (referred to as a “diploma” in some states, including North Carolina) earned $2,500 to $3,600 more per year than those without a credential, with the larger returns concentrated among men. For associate degrees, the estimated returns were $9,400 for women and $5,600 for men. Women saw little gain when awarded a short-term certificate, while men gained $5,200 per year. Estimated returns were highest in health-related and technical fields.

Key findings

The Education Policy Initiative contributes to a major research project led by The Center for Analysis of Postsecondary Education and Employment (CAPSEE), which conducts research in Florida, Michigan, North Carolina, Ohio, and Virginia in order to better understand the employment and earnings benefits associated with a broad range of postsecondary education pathways, including those at the sub-baccalaureate level. CAPSEE also seeks to identify policies that improve completion rates along educational pathways leading to strong economic returns.

The Effect of Labor Market Information on Community College Students' Major Choice

An important goal of community colleges is to prepare students for the labor market. But are students aware of the labor market outcomes in different majors? And how much do students weigh labor market outcomes when choosing a major? In this study we find that less than 15% of a sample of community college students in California rank broad categories of majors accurately in terms of labor market outcomes. Students believe that salaries are 13% higher than they actually are, on average, and students underestimate the probability of being employed by almost 25%. We find that the main determinants of major choice are beliefs about course enjoyment and grades, but expected labor market outcomes also matter. Experimental estimates of the impact of expected labor market outcomes are larger than OLS estimates and show that a 10% increase in salary is associated with a 14 to 18% increase in the probability of choosing a specific category of majors.

The research reported here was supported by the Institute of Education Sciences, U.S. Department of Education, through Grant R305C110011 to Teachers College, Columbia University. The opinions expressed are those of the authors and do not represent views of the Institute or the U.S. Department of Education. We are particularly grateful to the assistance we received from our community college partners and from Rick Waclawek and Michael Williams at the Michigan Department of Technology, Management and Budget (DTMB) for assistance in accessing UI wage record data. Joanna Frye, Francie Streich, and Chris Zbrozek provided excellent research assistance.