The Returns to College Education
AbstractWe apply grouped college-level data to estimate the returns to a college education. After comparing different econometric methods for estimating cluster samples with grouped data, we argue that there are two sets of population parameters of concern: one for estimating withingroup effects, and the other for between-group effects. This leads to three major points: 1) the traditional use of fixed-effects models usually ignores the importance of between-group effects and may lead to erroneous conclusions; 2) regressions with group variables have several identifiable econometric issues; and 3) estimations of between-group estimators for betweengroup effects with grouped data are valid. We investigate the returns to higher education using explanatory variables representing characteristics for individuals, colleges and universities, and states with grouped data from over 500 colleges and universities. We generate a major index measuring college characteristics that are related to students’ disciplines in their degree majors. We find that college majors are important determinants of post-graduation incomes; in contrast the incremental value of private schooling over publically funded colleges is relatively modest. At zero rates of interest it takes approximately 59 years for the excess earnings in starting salaries attributable to a private education to equal the extra costs of four years of private schooling.
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Bibliographic InfoPaper provided by Ball State University, Department of Economics in its series Working Papers with number 201202.
Length: 61 pages
Date of creation: Aug 2012
Date of revision: Aug 2012
college education; between-group effects; cluster samples;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-EDU-2012-08-23 (Education)
- NEP-LAB-2012-08-23 (Labour Economics)
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