Calculating Public-Economic Rates of Return to Education

Calculating Public-Economic Rates of Return to Education

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Tom Schenk Jr

June 01, 2012
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  1. Tom Schenk Jr., Consultant

  2. Returns Matrix 2

  3. What Iowa Knows ? 6% ? ? 3 Public Private

    Economic Social
  4. Training & Employment 4 National Student Clearinghouse Unemployment Insurance Community

    College MIS TEOS
  5. Staggered Cohorts 5 Leavers Completers 2001 2002 2003 …

  6. Obtaining Tax Revenue 6 TAXSIM Calculator

  7. Rate of Return 7 t(wti ) – t(wtj ) (1

    + i )t Σ T t=1 - C
  8. Computational Approach 8       

                           ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( , 2 , 1 , , 2 2 , 2 2 , 2 , 1 2 , 1 1 1 , 2 , 1 , , 2 2 , 2 2 , 2 , 1 2 , 1 1 1 T n n m T T , T n n n T T , x t x t x t x t x t x t x t x t x t y t y t y t y t y t y t y t y t y t               X Y Matrix of wages for completers Matrix of wages for leavers
  9. Computational Approach 9       

      T i i d ) 1 ( 1 ) 1 ( 1 1   Let d be a vector of discount rates . When we assume an interest rate, then the net present value is: c d F        ) ( X Y Where F is an n-element vector of net present values for each student.
  10. Finding a Root 10 -0.2 0 0.2 0.4 0.6 0.8

    1 2 3 4 5 6 7 8 9 10 11 12 Interest Rate Net Present Value
  11. None
  12. Matching 12

  13. Matching 13 I want a job! I want to graduate!

    ability attitude preferences
  14. Propensity Score Matching 14 y = φ(x1 ,…,xn ) Completion

    Logit Function major gender race/ethnicity Clustered by: college major
  15. Matching 15

  16. Bootstrapping 16 t(w) t(w) t(w) $ $$ t(w) t(w) t(w)

    $$ $$ $$
  17. Median Tax Revenue 17 $0 $200 $400 $600 $800 $1,000

    $1,200 $1,400 2002 2003 2004 2005 2006 2007 2008 Completers Leavers
  18. Matched Cohort 18 $0 $200 $400 $600 $800 $1,000 $1,200

    $1,400 2002 2003 2004 2005 2006 2007 2008 Completers Leavers
  19. Net Present Value 19 Degree Type Net Present Value All

    Completers -$1,477 (86) Associate of Applied Studies -$725 (83) Associate of Arts $1,506 (85)
  20. Net Present Value 20 Major Net Present Value Health $25,105

    (1,616) Arts & AV $20,995 (1,627) Manufacturing $5,575 (1,620) Business -$6,875 (1,627)
  21. Net Present Value 21 College Net Present Value Large-Urban -$1,111

    (1,616) Large-Rural -$2,116 (1,627) Small-Rural -$2,347 (1,620)
  22. None
  23. Tom SCHENK Iowa Department of Education (515) 281-3753 tom.schenk@iowa.gov www.iowa.gov/educate/

    www.iowa.gov/educate/ccpublications/ The Annual Condition of Iowa’s Community Colleges 2009, Iowa Department of Education Economic Returns & Career Transitions for Iowa Community College Students, Iowa Department of Education and Iowa Workforce Development “Calculating Returns to Degree Using Administrative Data: 2002 Cohort” T. Schenk & K. Matsuyama. Iowa Department of Education Technical Bulletin No. 2. 2009.