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The Returns to College Education

Author

Listed:
  • Philip R. P. Coelho

    (Department of Economics, Ball State University)

  • Tung Liu

    (Department of Economics, Ball State University)

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.

Suggested Citation

  • Philip R. P. Coelho & Tung Liu, 2012. "The Returns to College Education," Working Papers 201202, Ball State University, Department of Economics, revised Aug 2012.
    • Handle: RePEc:bsu:wpaper:201202
    as

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    References listed on IDEAS

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    Cited by:

    1. Philip R P Coelho & Tung Liu, 2017. "The Returns to College Education — An Analysis with College-Level Data," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(4), pages 604-620, September.

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    More about this item

    Keywords

    college education; between-group effects; cluster samples;
    All these keywords.

    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

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