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30 July 2009

Relative Earnings Trajectories by Level of Educational Attainment After Age 18-24 The amount of real income that an average individual will earn at any point of their life can be reasonably determined from the average distribution of annual earnings by age and educational peer group over a period of years.

We previously explored the relationship between age, education and inflation-adjusted earnings for another project, but we limited that study to just the first 25 years of a typical bachelor degree holder's life after they graduated from college. Today, we're widening our net to examine how the average individual's income changes over time, depending upon whether they have less than a high school education, have graduated from high school, have earned an Associates degree or have earned a Bachelor's degree as they progress in life from Age 18-24 through Age 65-69.

Building on what we did previously, our first step was to calculate the percentage of Age 18-24 earnings to determine the basic trajectory that each educational peer group took from 1997 through 2007 with respect to this "starting" income using data from the U.S. Census' Current Population Survey covering each of those years, for those working full-time year-round. After calculating the earnings trajectory for each of these years, we averaged the basic trajectories to produce our first chart.

Next, we converted the mean earnings of the Age 18-24 educational peer group for each year to be in constant 2007 U.S. dollars, then found the average and standard deviation, which we've presented in our second chart in this post.

Average 'Starting' Income, 1997-2007 We note that the surveyed income data for 2002 would appear to be an anomaly, in that the mean incomes of the surveyed population in that year are much higher for those with less than a high school education and bachelor degree holders than what we find in previous or following years. We believe this is a consequence of the aftermath of the economic recession of 2001, which likely resulted in the surveyed working population skewing toward the most highly demanded, and often more highly compensated, professions.

If we omit the annual earnings reported for 2002 for those with less than a high school education and bachelor degree holders, we find the the standard deviation declines from $1,977 to $1,293 for those without high school diplomas or GEDs and from $3,091 to $1,417 for the college graduates. The mean incomes for each group declines from $21,834 to $21,366 for those with less than a high school education and from $35,902 to $35,063 for those holding bachelor degrees. We opted to retain the data for 2002 in producing the charts in this post.

Inflation-Adjusted Earnings Trajectories by Level of Educational Attainment After Age 18-24 Now that we've calculated the basic lifetime earnings trajectory for each educational peer group, as well as the average "starting" income represented by the inflation-adjusted income of the Age 18-24 surveyed population for each of these groups, we can reasonably determine how the income for an average individual within each group's annual earnings will change throughout their lifetime. Our final chart shows what we found in constant 2007 U.S. dollars.

One pattern we note is that income generally rises up through Age 50-54 for each of the educational peer groups. However, we see a significant drop-off in income earned after this age band. This outcome is most likely the result of more successful, higher income-earning individuals opting to retire earlier than their lower income earning peers.

That likelihood is also suggested by the steeper drop-off in annual earnings that we see for the higher income earning educational peer groups after Age 50-54, especially the highest earning bachelor degree holders and associate degree holders as compared to the lower earning high school graduates and those with less than a high school education. In the case of the highest earning bachelor degree holders, we see the maximum earning point reached roughly five years before the same peak earnings point for the other educational peer groups.

Update 12 March 2010: We've developed a tool you can use to project an individual's income at different ages (assuming their income trajectory parallels the average level for an individuals with a similar level of education.) And if you're someone who is conducting demographic research for the Boston Beer Company, or others, we're available for consulting. Just see the "About Political Calculations" in the right hand sidebar at the top for our contact information!...

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