Is it still worth studying today?

Whether a degree is worthwhile depends on many variables. Of course, one of the decisive variables is the chosen course of study (the university) as well as the student himself.For example, a course of study that is not so sought after can still be the right choice for an extremely motivated student who acquires additional knowledge in addition to his studies. Statistics, distributions and averages are helpful in their assessment, but any decision for the future is an isolated case. Option X is a one-way street for one candidate and the way to a successful future for the other.

However, the overall benefit of our society is attributed to the study programme.The media, in particular, never tires of emphasizing the benefits of studying.

If you ask Google if you are worth studying, you will get a clear answer: Yes, definitely. Here are a few headings of articles that can be found on the first page of Google search results:

  • “Study shows: In these professions it is worthwhile to study” (Bento)
  • “This is how much a degree pays off” (World)
  • “Studying is always worthwhile” (Time Onliine)

Under these headings, news articles present the results of two studies.In its study “Bild hat Zukunft” (Picture has a future), the ifo Institute shows that people with a degree in their working life earn 387,000 euros net more than those with a completed apprenticeship. An IAB short report puts the value of a course of study at 1.08 million euros gross compared to an unskilled auxiliary worker.

From these statistics, which ultimately compare the averages of two groups (academics and persons with completed apprenticeships), a causal link is then constructed in these articles: the higher income must be due to the study.

At no point is it pointed out that this interpretation is not a fact, but an assumption.And so one reads these articles as a high school graduate in the belief that the difference in income is due solely to the study. This also makes intuitive sense: after all, you acquire additional knowledge and build up a network among fellow students and professors.

However, the education premium can be broken down into three effects: “Ability Bias”, “Signalling” and “Human Capital”.What exactly does that mean?

  • Ability Bias.

Universities (using aptitude tests and grade averages) filter out intelligent and conscientious individuals.According to studies, the IQ explains about 30% of the education premium, while the employment factors, such as conscientiousness, are responsible for a further 15%. Almost 50% of the education premium cannot therefore be attributed to the study programme.

  • Signalling.
  • Uni degrees signal to employers: here an intelligent, hard-working and (rules) adapting person applies.

  • Human capital. The course of study imparts relevant knowledge and important skills that are useful directly or indirectly later in the profession.
  • Instead of 387,000 euros, a course of study will bring you an average of “only” 212,850 euros (387,000 x 0.55 = 212,850).

    In fact, there is a causal link between studies and later additional earnings. These 55% are made up of signalling and human capital. Economists argue over the exact proportions of signalling and human capital.

    However, there is some evidence that successful studies send an important signal to employers:

    A significant part of your education premium is allocated exclusively to your diploma.Scientists call this effect the “sheepskin effect” (diplomas were previously printed on sheepskin). It says that after graduation, including a diploma, you will earn a significantly higher income than someone who leaves university just before graduation without a certificate. For the USA, this effect has been demonstrated in several studies. A much-quoted study in 1996 found that people with a bachelor’s degree earn 33% more than those who have undergone the same education and started their studies but have not completed it.Another study from 1999 estimated the additional income efficiency from a bachelor’s degree at 21%.

    So what does this mean to you in concrete terms?

    • The average study increases your life income “only” by about 212,850 euros and not by 387,000 euros
    • For some professional wishes (e.g. doctor or lawyer) you have to study.

    For many others, however, one should think carefully about whether a classical study is the best and fastest way to the goal. Alternatives to study (e.g. a direct start to work) are more attractive than is often presented. Perhaps it is worth thinking about another way.

  • Dropping out just before graduation is more expensive than you think, as your graduation certificate is a big part of your education award (“sheepskin effect”)
  • If you’re wondering if you should choose a difficult or a simple subject, you’ll be weighing exactly between signalling and human capital: in the simple subject, you’ll write a better grade and a better grade average sends a strong signal to companies.
  • But at the same time you learn less there.

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