Labor-Market Returns to Two- and
Four-Year College
Authors:
Thomas J Kane and Cecilia Elena Rouse
Source: The American Economic Review, Vol. 85, No. 3 (Jun., 1995)
Percentage of 18- to 24-year-olds
enrolled in degree-granting institutions
50
45
40
35
30
25
20
15
10
5
Total, all students
Level of institution 2-year
Level of institution 4-year
Sex Male
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
0
Sex Female
SOURCE: U.S. Department of Commerce, Census Bureau, Current Population Survey (CPS),
October, 1967 through 2012.
Postsecondary Statistics
• In 1973, 24% of 18-24 year olds were attending a
degree granting institution
–
–
–
–
21% of females 18-24
28% of males 18-24
7% in 2-year colleges
17% in 4-year colleges
• In 2012, 41% of 18-24 year olds were attending a
degree granting institution
–
–
–
–
44% of females 18-24
38% of males 18-24
13% in 2-year colleges
28% in 4-year colleges
Household debt type (Percent of GDP)
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
HE Revolving
Auto Loan
Credit Card
Student Loan
Other
SOURCE: FEDERAL RESERVE BANK OF NEW YORK , QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT , Aug
2015
Debt Delinquency
$35
$30
30 or more days delinquent
Billions
$25
HELOC
$20
AUTO
$15
CC
$10
STUDENT LOAN
OTHER
$5
$0
$35
$30
90 or more days delinquent
$25
Billions
AUTO
$20
CC
$15
HELOC
$10
STUDENT LOAN
$5
OTHER
$0
SOURCE: FEDERAL RESERVE BANK OF NEW YORK , QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT , Aug
2015
The Growing Debt Problem
• $1.19 trillion of student debt reported in
2015:Q2.
– Compared to $0.70 trillion of credit card debt and
$1.00 trillion of auto loans
– $8.12 trillion of mortgage debt, the largest household
debt
• Delinquency rates are increasing for student
loans with $29.5 billion 30 days or more and
$27.9 billion 90 days or more
– Compared to mortgage loans at $92.95 and $33.76
respectively
Postsecondary Education Policy
Actions
• In January 2015, Obama outlined his plans to
make community colleges free
• In Aug 2015, Hillary lays out her $350 million plan
give students ways to pay for tuition to public
colleges and universities without taking out any
loans
• Tennessee (2014) and Oregon (2015) both
proposed state plans to setup free 2-Year college
for recent HS graduates
• In Nov 2015, Greg Abbott announced his plan to
have 60% of all 25-34 year-olds with some sort of
college degree by 2030
The Main Economic Issues
• Micro-level: Does post-secondary education
increase wages and long-term wealth?
• Macro-level: Does post-secondary education
increase productivity?
Goal: To relate post-secondary
education to income, while
controlling for ability and family
background.
The Data
• National Longitudinal Survey of the High
School Class of 1972 (NLS72)
– Conducted by the National Center for Education
Statistics of the U.S. Department of Education
– The 22,652 participants were all seniors in high
school in Spring 1972
– There were 5 follow-up surveys after the initial in
1973, 1974, 1976, and 1986
– 9212 (41%) participated in all rounds of interviews
Data Problems – NLS72
• Post-secondary Education Transcript Survey
(PETS)
– Participants 14,759 or the total 22,652 coded by a
unique ID
– Merged 484,522 courses to 120,807 terms to 24,253
transcripts which have no unique ID coding
– Assumed everything in sequential order
• Problems came with missing and inconsistent
data without any unique identifier to use for
corrections
The Data
• National Longitudinal Survey of Youth – 1979
(NLSY79)
– The 12,686 participants were born between 1957
and 1964 and were first interviewed in 1972
– 12 rounds of interviews through 1990 and 25
through 2012
– 8,882 (70%) took part in all surveys through 1990
and 5,013 (40%) through 2012
Results: NLS-72 (Males)
Log hourly wages
Coefficient
(Total number of
two-year college
credits)/30
(Total number of
four-year college
credits)/30
SE Coefficient
Log hourly wages
SE Coefficient
SE Coefficient
SE Coefficient
SE Coefficient
SE
0.0467
0.0096
0.0424
0.0095
0.0412
0.0170
0.0310
0.0125
0.0404
0.0125
0.0154
0.0251
0.0602
0.0036
0.0458
0.0042
0.0022
0.0132
0.0529
0.0056
0.0338
0.0069
-0.0398
0.0240
A.A. (highest
degree)
0.0412
0.0407
0.0858
0.0473
B.A. (highest
degree)
0.2291
0.0218
0.1467
0.0393
Graduate degree
(highest degree)
Additional Control
Measures
0.2997
0.0325
0.2209
0.0506
R2
Hypothesis Testing
Two-year
credit=four-year
credit
no
yes
yes
no
yes
yes
0.1485
0.1665
0.1778
0.0663
0.1671
0.1780
0.1617
0.7266
0.0599
0.0606
0.5884
0.0356
Two-year credit=AA
0.4070
0.1406
Four-year credit=BA
0.0000
0.0000
Results: NLS-72 (Males)
Log annual wages
Coefficient
(Total number of
two-year college
credits)/30
(Total number of
four-year college
credits)/30
SE Coefficient
Log annual wages
SE Coefficient
SE Coefficient
SE Coefficient
SE Coefficient
SE
0.0406
0.0109
0.0353
0.0108
0.0571
0.0189
0.0097
0.0160
0.0355
0.0147
0.0394
0.0259
0.0728
0.0041
0.0561
0.0048
0.0262
0.0145
0.0480
0.0068
0.0315
0.0077
-0.0443
0.0271
A.A. (highest
degree)
0.0734
0.0458
0.0935
0.0557
B.A. (highest
degree)
0.2808
0.0251
0.1389
0.0428
Graduate degree
(highest degree)
Additional Control
Measures
0.3746
0.0378
0.2514
0.0591
R2
Hypothesis Testing
Two-year
credit=four-year
credit
no
yes
yes
no
yes
yes
0.1555
0.1729
0.1801
0.0408
0.2036
0.2150
0.0033
0.0578
0.0030
0.0058
0.7756
0.0046
Two-year credit=AA
0.4624
0.3294
Four-year credit=BA
0.0015
0.0000
Results: NLS-72 (Females)
Log hourly wages
Coefficient
(Total number of
two-year college
credits)/30
(Total number of
four-year college
credits)/30
SE Coefficient
Log hourly wages
SE Coefficient
SE Coefficient
SE Coefficient
SE Coefficient
SE
0.0689
0.0092
0.0643
0.0091
0.0583
0.0165
0.0547
0.0143
0.0479
0.0148
0.0236
0.0282
0.0769
0.0033
0.0620
0.0036
0.0679
0.0130
0.0621
0.0063
0.0412
0.0074
0.0513
0.0221
A.A. (highest
degree)
0.2337
0.0318
0.2168
0.0513
B.A. (highest
degree)
0.2841
0.0186
0.1693
0.0400
Graduate degree
(highest degree)
Additional Control
Measures
0.4239
0.0301
0.3040
0.0567
R2
Hypothesis Testing
Two-year
credit=four-year
credit
no
yes
yes
no
yes
yes
0.2797
0.2984
0.3056
0.0712
0.1892
0.1943
0.3869
0.7987
0.6371
0.5892
0.6258
0.3241
Two-year credit=AA
0.0061
0.0001
Four-year credit=BA
0.8055
0.0005
Results: NLS-72 (Females)
Log annual wages
Coefficient
(Total number of
two-year college
credits)/30
(Total number of
four-year college
credits)/30
SE Coefficient
Log annual wages
SE Coefficient
SE Coefficient
SE Coefficient
SE Coefficient
SE
0.0693
0.0141
0.0658
0.0141
0.0655
0.0260
0.0341
0.0219
0.0295
0.0211
0.0094
0.0399
0.0982
0.0051
0.0982
0.0058
0.1007
0.0202
0.0664
0.0093
0.0419
0.0105
0.0369
0.0311
A.A. (highest
degree)
0.2561
0.0499
0.1507
0.0756
B.A. (highest
degree)
0.3898
0.0296
0.1818
0.0581
Graduate degree
(highest degree)
Additional Control
Measures
0.6074
0.0474
0.3503
0.0799
R2
Hypothesis Testing
Two-year
credit=four-year
credit
no
yes
yes
no
yes
yes
0.2342
0.2432
0.2511
0.0441
0.2639
0.2701
0.0425
0.1579
0.2762
0.1110
0.5298
0.5134
Two-year credit=AA
0.0630
0.0437
Four-year credit=BA
0.8695
0.0040
Results: NLSY79 (Males)
Log hourly wages
Coefficient
Log annual wages
SE
Coefficient
Log hourly wages
SE
Coefficient
Log annual wages
SE
Coefficient
SE
Only attended vocational
school (no degree)
0.0421
0.0283
0.0726
0.0383
0.11561
0.02936
0.08410
0.04213
Only attended two-year
school (no degree)
0.0759
0.0303
0.0713
0.0404
0.13690
0.03266
0.14806
0.04434
Only attended four-year
school (no degree)
0.0833
0.0351
0.1030
0.0473
0.15806
0.03855
0.23712
0.05210
Attended both two- and fouryear college (no degree)
0.0880
0.0404
0.1340
0.0538
0.20431
0.04667
0.21344
0.06248
A.A. (highest degree)
0.2068
0.0396
0.2357
0.0537
0.22144
0.04104
0.21685
0.05570
B.A. (highest degree)
0.3386
0.0304
0.4223
0.0407
0.38060
0.03330
0.50821
0.04500
Graduate degree (highest
degree)
0.4424
0.0541
0.6692
0.0706
0.42627
0.05336
0.62722
0.06988
Other Degree (highest
degree)
0.0781
0.0663
0.1789
0.0897
0.14891
0.03885
0.19811
0.05376
R2
0.3134
0.3452
0.3196
0.3258
0.5958
0.1577
0.3679
0.0459
0.0000
0.0977
0.3050
0.7301
0.2292
0.0000
Hypothesis Testing
Some Two-Year=Some Four Year
Some Two-Year=Some of Both
Some Four Year=Some of Both
Some Two Year=AA
Some Four Year=BA
Results: NLSY79 (Females)
Log hourly wages
Coefficient
Log annual wages
SE
Coefficient
Log hourly wages
SE
Coefficient
Log annual wages
SE
Coefficient
SE
Only attended vocational
school (no degree)
0.0035
0.0289
0.1102
0.0449
0.03914
0.03010
0.14924
0.04721
Only attended two-year
school (no degree)
0.0360
0.0287
0.1323
0.0436
0.07433
0.03090
0.13709
0.04870
Only attended four-year
school (no degree)
0.0307
0.0346
0.0866
0.0535
0.09108
0.03619
0.22826
0.05608
Attended both two- and fouryear college (no degree)
0.0543
0.0389
0.1266
0.0578
0.07684
0.04165
0.20230
0.06480
A.A. (highest degree)
0.1877
0.0361
0.3085
0.0542
0.21082
0.03497
0.25634
0.05383
B.A. (highest degree)
0.3311
0.0305
0.5130
0.0461
0.35908
0.03164
0.56290
0.04928
Graduate degree (highest
degree)
0.4265
0.0558
0.5727
0.0813
0.48822
0.05092
0.85003
0.07868
Other Degree (highest
degree)
0.3152
0.0633
0.3483
0.0938
0.11030
0.03795
0.19640
0.05908
R2
0.3424
0.3846
0.3560
0.3164
0.6414
0.9518
0.7515
0.0001
0.0000
0.1009
0.3114
0.7075
0.0255
0.0000
Hypothesis Testing
Some Two-Year=Some Four Year
Some Two-Year=Some of Both
Some Four Year=Some of Both
Some Two Year=AA
Some Four Year=BA
Results -Conclusions
• Some evidence to suggest that even testing the
waters in college shows returns over those that
only completed High School
• Similar returns in two- and four-year college
credits
• Some evidence to suggest similar returns in not
completing two-year college and getting an
Associates degree
• Most of the returns in a four-year college is in
actually completing a Bachelors degree.
Extended Results: NLSY79
Log Annual Income 2011
Males
Coef
Only attended vocational school
(no degree)
Females
Coef
SE
SE
0.30744
0.07839
0.12497
0.09305
0.23017
0.09544
0.16847
0.09432
0.39625
0.10882
0.22580
0.11611
Attended both two- and four-year
college (no degree)
0.43043
0.13758
0.10455
0.11878
A.A. (highest degree)
B.A. (highest degree)
0.41135
0.81627
0.10570
0.08685
0.19667
0.46973
0.10321
0.10042
Graduate degree (highest degree)
1.29706
0.12478
0.68474
0.10923
Other Degree (highest degree)
0.28264
0.09289
0.16616
0.10883
Only attended two-year school
(no degree)
Only attended four-year school
(no degree)
R2
0.31980
0.24970
Some Two-Year=Some Four Year
0.0940
0.5712
Some Two-Year=Some of Both
0.0844
0.5291
Some Four Year=Some of Both
0.7791
0.2868
Some Two Year=AA
0.0635
0.7395
Some Four Year=BA
0.0000
0.0098
Hypothesis Testing
Extended Results - Conclusion
• Again show some evidence, that there are
returns to testing the waters and that there
are similar returns to either some two- and
four-year colleges.
• Comparing the results from 2012 and 1990,
we see a among males returns on education
increased substantially compared to those
with only a high school degree.
– Females showed a decrease
Extended Results: NLSY79
Net Wealth 2012
Males
SE
Coef
Only attended vocational school (no
degree)
Only attended two-year school (no
degree)
Only attended four-year school (no
degree)
Attended both two- and four-year
college (no degree)
Coef
Females
SE
1,317.42
26,286.42
61,215.74
22,230.75
4,505.42
31,995.54
70,375.56
25,695.23
36,780.79
43,077.69
65,793.24
34,597.17
118,931.34
59,531.57
69,570.36
31,885.86
A.A. (highest degree)
104,056.80
39,649.54
52,513.30
25,079.75
B.A. (highest degree)
211,301.37
38,588.78
152,572.24
29,272.51
Graduate degree (highest degree)
280,106.35
64,992.87
213,664.26
42,227.96
Other Degree (highest degree)
-10,678.47
39,461.69
68,795.53
37,312.67
2.34
0.45
2.47
0.29
Spouses Income 2011
R2
0.22280
0.23420
Some of Both=AA
Some of Both=BA
AA=BA
BA= Graduate
0.7965
0.0736
0.0094
0.1167
0.6653
0.0262
0.0011
0.0625
Hypothesis Testing
Extended Results - Conclusion
• Looking at net wealth, we see attending some
school doesn’t seem to significantly effect net
wealth compared to those with only a high
school degree except for those with both
college types
• Among males shows similar gains comparing a
Bachelors to a Graduate degree. Females
shows the opposite.
Additional Questions
• With evidence to suggest significant returns in
post-secondary education, will policies
encouraging more people to go to college
show diminishing marginal returns?