Same degree, different paycheck: research tracks a class earnings gap

A college degree can shrink the earnings gap between students from rich and poor families, but research cited by economists suggests it does not erase it. For everyday investors, that matters because early pay affects how much someone can save, invest and build wealth over a working life.

Anna Stansbury, an assistant professor at MIT, has pointed to evidence that graduates from lower-income backgrounds can earn less than classmates who studied the same subject at the same university and received the same grade. In remarks shared by the Resolution Foundation, Stansbury said one finding showed a 7% earnings difference 10 years after graduation between otherwise similar graduates from different socioeconomic backgrounds.

College helps, but family income still shows up

A National Bureau of Economic Research study by Raj Chetty and co-authors examined outcomes for more than 30 million students, comparing children’s adult income ranks with their parents’ income ranks and the type of college they attended.

The study found that college attendance is associated with higher adult earnings, especially at more selective schools. For a child whose parents were at the 20th percentile of income, the research indicated an expected adult income rank of about the 42nd percentile nationally. That rose to the 48th percentile for children who attended two-year colleges, the 60th percentile for non-elite four-year colleges and the 73rd percentile for elite colleges.

The same research also found that parental income continued to matter within college categories. Nationally, the gap between children from the richest and poorest families was about 29 income-rank percentiles. Among students at non-elite four-year colleges, the gap was about 10 percentiles. At elite colleges, it was about 6.5 percentiles, the smallest gap cited in the data.

Those smaller differences can still add up. Of Dollars and Data, using household income estimates for ages 30 to 34, said the 70th percentile was about $110,000 in 2022, while the 77th percentile was about $120,000. The NBER work used individual income, not household income, but the example shows why a few percentile points can translate into meaningful annual dollars.

Networks can shape access to information

One explanation researchers have studied is unequal access to career information and professional networks. Chetty and co-authors separately analyzed 21 billion Facebook friendships and found that “economic connectedness,” meaning the share of a person’s friends who come from higher-income backgrounds, was a strong predictor of upward mobility.

In that study, children from lower-income families who had the same level of economic connectedness as higher-income peers had adult earnings about 20% higher on average. The finding suggests that who students know can affect what they learn about recruiting timelines, career paths and job openings.

Internships and hiring screens can widen the divide

Internships can also sort students by family resources. A University of Wisconsin Center for Education Research working paper found that 64% of students who wanted internships but did not take them cited the need for paid work as a main barrier. Unpaid or low-paid roles can be easier for students with family support to accept.

Hiring can add another filter. A 2016 resume audit study sent applications to 316 law firms with identical qualifications but different extracurricular signals tied to class background. Male applicants with traditionally upper-class activities received callbacks at a 16.25% rate, more than four times the rate for male applicants whose activities signaled a lower-class background.

Stansbury has also co-authored research on academia finding that first-generation college graduates were 10% less likely to receive tenure at an R1 university, earned 3% less and reported 5% lower job satisfaction than former PhD classmates from the same institution and field whose parents held non-PhD graduate degrees. The paper attributed much of the gap to differences in cultural and social capital, meaning familiarity with professional norms and access to useful relationships.

The research points to a practical conclusion: education can be a powerful equalizer, but career knowledge, networks, internships and hiring norms still influence who turns the same credential into higher pay.

This story draws on original reporting from Of Dollars and Data.