Starbucks college plan called better than a wage hike

Starbucks' plan to pay for bachelor's degrees for its workers is a "tremendous move" that is better than a wage hike, according to economist Nicole Smith.

The Seattle-based coffee chain announced earlier this week that it is expanding its employee college tuition assistance program to cover the entire cost of getting an online bachelor's degree from Arizona State University. It had previously been offered to juniors and seniors seeking to complete their degree.

"It's the difference between teaching someone to fish and handing someone a fish," said Smith, chief economist at Georgetown University Center on Education. (Tweet this)

"Essentially Starbucks is recognizing its employees as assets that are worthy of investment," she added.

Starbucks
Adam Jeffery | CNBC

That investment will ultimately mean more money in the graduates' pockets. Smith noted that when workers have a college degree, the wage premium increases about 84 percent. Therefore, the degree has more long-term effects.

Starbucks' move is in keeping with the long-established idea that workers eventually earn more with a college education. A 2011 Georgetown study showed that an advanced degree could earn a worker as much as $2 million more over their lifetimes than someone with a high school diploma. Even having limited post-secondary education without having a formal degree can add as much as $250,000 to lifetime earnings, the study showed.

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"It makes more sense for their employees to actually have a bachelor's degree and be able to take it anywhere, because Starbucks isn't limiting you to have to work at Starbucks all the time," Smith told CNBC's "Closing Bell."

In that regard, "it makes more sense to have that than an extra $2 in your salary."

More than 140,000 Starbucks employees are eligible for the program. They must work at least 20 hours per week.

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So far, about 2,000 workers have enrolled in the program and Starbucks is hoping the expansion will entice more employees. While the participation rate so far is only a fraction of eligible employees, Smith is hoping that it will catch on as more people recognize the great opportunity.

However, she said there could be a great challenge for some employees who may need additional assistance to balance a 20-hour workweek as they work toward a four-year degree.

"If you are a parent or a single mom, it's going to be much more difficult and perhaps you know people need additional support initiatives in order to be able to fully participate. But I think overall it's much better," Smith said.

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Starbucks expects to spend $250 million or more over the next decade on tuition reimbursement, which BTIG chief global strategist Dan Greenhaus believes may be a wise investment in a tightening labor market.

"Presumably you would attract better candidates" who are interested in the program, he said.

That said, the move is irrelevant when it comes to deciding whether to invest in Starbucks stock, he added.

—Reuters and CNBC's Laura Petti contributed to this report.