The returns to individual and college characteristics: Evidence from the National Longitudinal Survey of Youth

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Abstract

There is growing interest in the heterogeneity of earnings among college graduates. This study examines earnings differentials across both individual and institutional characteristics. Using data from the National Longitudinal Survey of Youth, it can be seen that graduates from highly or most selective colleges and universities earn significantly more than graduates from less selective institutions. Additionally, graduates from graduate degree granting and research universities, and private universities earn more than their counterparts from liberal arts colleges and public institutions. There is, however, variation across racial and gender groups in the returns to individual and college characteristics. These findings are important in an educational environment where the (market) value of a liberal arts education is under scrutiny, and where the higher costs of private versus public colleges and universities are being questioned.

Introduction

The vast majority of the economics literature on the returns to a college degree has emphasized the level of education in enhancing earnings ability. The first generation of the literature focused on quantifying the returns to an additional year of school or on the diploma effects of receiving one's degree. More recently, researchers have begun to address the full breadth of college experiences and to explore heterogeneity in the returns to education. In particular, there has been a growing interest in the returns to both individual and institutional characteristics.

The existing literature tends to only control for a limited number of college quality or selectivity measures (Bok & Bowen, 1998; Dowd, 1998; Davies & Guppy, 1997; Behrman, Constantine, Kletzer, McPherson & Schapiro, 1996a; Behrman, Rosenzweig & Taubman, 1996b; Brewer & Ehrenberg, 1996; Brewer, Eide & Ehrenberg, 1996; Daniel, Black & Smith, 1995; Loury & Garman, 1995; Fox, 1993; James & Alsalam, 1993; Litten & Smith, 1993; Rumberger & Thomas, 1993; James, Alsalam, Conaty & To, 1989). To my knowledge no study examines the earnings of liberal arts college graduates relative to graduates from larger research-oriented institutions, conditional on individual and institutional quality and control. This study examines the impact of selectivity, control, and college type on earnings. I limit the analysis to these institutional characteristics because these are the institutional qualities that are most visible to prospective students and employers.

This study examines the returns to college quality conditional on public versus private control and on the Carnegie classification of the institution. In addition, individual ability measures and labor market experiences, including Armed Forces Qualifications Test (AFQT) score (as a measure of academic ability and preparation), experience, tenure, race, gender, industry and occupation, are also controlled for. By using the National Longitudinal Survey of Youth (NLSY) to match individuals and institutions I am able to estimate the impact of college quality on the log of hourly wages, within institutional type and conditional upon individual characteristics. Conversely, I am able to estimate the returns to other institutional characteristics conditional upon quality. This is especially important in an educational environment where the (market) value of a liberal arts education is under scrutiny, and where the higher costs of private versus public colleges and universities are being questioned (McPherson & Schapiro, 1991).

I find strong evidence of higher earnings among the graduates of more selective institutions. There is also evidence of a premium for attending a larger graduate degree granting university, rather than a liberal arts college, and weak evidence that graduates of private institutions earn more than graduates of public institutions. While this pattern of returns to institutional characteristics holds for most groups, there is heterogeneity in the magnitude of the returns to institutional attributes based on race and gender. For example, it appears that males receive a higher return to attending a graduate degree granting university and a private institution than females; in contrast, there does not appear to be a significant difference in the earnings of non-white college graduates from public versus private institutions, while whites are penalized by the market for attending a public college or university. Additionally, non-whites from a highly or most selective institution earn a much higher premium than their white counterparts.

The remainder of the article is divided into four main topics. The next section outlines the sample chosen and constructed for this study. This is followed by a description of the underlying economic model and econometric methodology used to estimate the earnings across college characteristics. The next section presents the results of the regression analyses, and the final section summarizes these results.

Section snippets

Data

This study utilizes the National Longitudinal Survey of Youth. The NLSY is a survey of individuals from 1979 to 1996.1 The respondents were aged between 14 and 22 at the beginning of the survey, in 1979, and aged between 28 and 36 in 1993. This data set is particularly useful for this study since it tracks college-aged individuals

Model

This section focuses on the underlying economic model and methodology used to estimate the earnings differentials across institutional characteristics conditional upon individual traits and labor market experiences. Properly controlling for relevant individual attributes and a number of college characteristics enhances the understanding of variation in earnings across specific college characteristics. The process underlying the human capital investment decision to enroll in a particular college

Results

I begin by regressing the log of hourly wages against experience, experience squared, tenure, tenure squared, a dummy if the individual is male and a dummy if the individual is white.6 There are the usual concave increases in log wages over experience and tenure. Males earn significantly higher earnings than females, and there appears to be

Conclusion

In the context of an educational environment that is increasingly questioning the market value of a liberal arts education, and the increasing costs of private institutions and more selective colleges and universities, relatively little is known about the labor market returns to these institutional characteristics. This study contributes to the literature on the heterogeneity of returns to college by incorporating a more comprehensive list of institutional attributes and examining the earnings

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