What’s the value of a degree, Virginia?

07/12/2012 § 4 Comments

My prima alma mater sent me a link to a Washington Post article on a new database:

a groundbreaking database Virginia published Thursday … pinpoints for the first time how much graduates from specific college programs, public and private, earn when they enter the job market.

It’s good to have this sort of information available, although a lot of it is unsurprising. I think most people are aware that psych graduates tend to earn less than IT graduates. There will be some jostling over the earnings by institution, but again, I think people are pretty aware of university rankings. As always, insert the standard disclaimer that money isn’t everything in life.

The article is titled ‘New data tells what a Virginia college degree is worth’. Actually, the data does nothing of the sort. It tells you what annual earnings are by school and degree. It doesn’t actually tell you the present value of the degree. With some calculation and assumptions, you could figure it out from the data. Also, given the costs cited in the article, the benefit-cost ratios are going to vary widely. Anyone interested in an Honours project?

The Treasury has been looking at this issue, both in terms of private returns (to the person) and public returns (to the wider economy). My former colleague James Zuccollo (now part of the NZ Brain Drain) did a lot of interesting research on this, looking at both the theory and the data. We are working on a public report, but here is a chart from a presentation on the research:


The value of tertiary education in New Zealand is comparatively low. It’s still positive, so please don’t let this stop anyone attending university. Also, this doesn’t tell the whole story (so click through on the link above).

The government has been working with data from Statistics NZ, the IRD, and elsewhere to try to get a better handle on the benefits and the heterogeneity involved. I’ve done some web browsing, but haven’t come up with any really good links for you. It would be great if we could do what Virginia has done — tell entering students what they can expect to get for the time and money they spend on their education.


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§ 4 Responses to What’s the value of a degree, Virginia?

  • How did you guys figure the wages that would have been earned by someone attending college had that person not attended college?

    • Bill says:

      That wasn’t a question that we addressed directly. The premium from education comes from the OECD (IIRC), so they are the ones who have calculated it. The problem — which is where I think you’re going — is separating selection bias from treatment effect. If people going to a tertiary institution are self-selected, then their self-selection may be confounded with their attendance. I don’t have a good answer. James was the one who worked on the literature review (very hard, I have to say) so he may be able to point you (us) to something.

    • rauparaha says:

      Bill is being far too kind about the work we did: it was secondary research that really just interpreted the primary work already done around the world. The main thing you have to control for is ability and most people do that through natural experiments (eg. compulsory schooling laws) or by using data on prior achievement. That’s why Stats NZ is extending the EOTE dataset to link the unit-record data with secondary achievement. Once that’s complete it should be able to give some insight into the average value of tertiary education. Not perfect, but better than the OECD data Bill posted the chart of above, which just uses unadjusted age-earnings profiles.

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