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The Returns to College Education

Philip Coelho () and Tung Liu ()

No 201202, Working Papers from Ball State University, Department of Economics

Abstract: We 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.

Keywords: college education; between-group effects; cluster samples (search for similar items in EconPapers)
JEL-codes: C23 C38 I23 J24 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2012-08, Revised 2012-08
New Economics Papers: this item is included in nep-edu and nep-lab
References: View references in EconPapers View complete reference list from CitEc
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