The economic returns to a bachelor’s degree in Washington state

1. The economic returns to a bachelor’s degree in Washington state A WDQI Research Report Toby Paterson and Greg Weeks Forecasting Division Office of Financial Management may 2014 EDUCATION RESEARCH DATA CENTER &

2. Study purpose This paper compares the earnings of workers with bachelor’s degrees from Washington state public institutions with the earnings of workers with Washington state public high school diplomas only. Our analysis is based on data from the Washington State Education and Research Data Center’s P-20w data warehouse. WDQI Research Report

3. Hypothesized time path of earnings, college graduate and high school groups WDQI Research Report

4. Study approach The study assumes that college graduates differ from high school graduates in ways (measurable and unmeasurable) that affect the likelihood of attending and completing college, and also affect earnings. The difference between the groups is sometimes called ability or selection bias. Simple comparisons of earnings by educational attainment lead to biased (over-stated) estimates of the earnings premium associated with a college degree. We utilize a propensity score matching approach to correct for selection bias in this study. We also estimate separate models for females and males. WDQI Research Report

5. Study methodology • The propensity score method is utilized to develop a matched comparison group. • A propensity score is the estimated probability that a high school graduate will earn a bachelor’s degree from a public Washington university or college within five years. • The propensity scores are estimated separately for each cohort and gender using logistic regression with independent variables representing: • student ability (GPA); • student poverty status (FRPL); • local economy (unemployment rate in county); and • location (county). • Once the propensity scores are estimated for each sample member, then individual treatment group members are matched to comparison group members. WDQI Research Report

6. Study methodology - Two This single measure then indexes all the variables in the characteristics vector and provides a selection corrected comparison of the earnings of college graduates and high school only workers. The distributions of propensity scores have sufficient common support (overlap) to proceed with the matching procedure. Comparison and treatment group members are matched by nearest neighbor propensity score. We use matching with replacement (each comparison group member can be matched to multiple treatment group members). We use the “with replacement” technique because, in some cohorts, our comparison group is smaller than our treatment group and it greatly reduces the overall distance between propensity scores. WDQI Research Report

7. The cohort definitions Cohorts defined by Washington High School graduates in 2005 (Cohort1), 2006 (Cohort 2) and 2007 (Cohort 3). The follow up period covers seven years after high school graduation. Earnings differences between high school graduation and bachelor’s degree attainment (assumed at year five) are the opportunity cost of attending college. Unemployment Insurance wage record data are the source for earnings. Earnings data are available for 2008 - 2012. WDQI Research Report

8. Extracting, cleansing and merging the data WDQI Research Report

9. Editing the data Study Group – All HS graduates from WA public high schools graduating in 2005-2008 (four annual cohorts: 246,663 Potential Comparison Group Members – removed those with four-year college experience: 174,205 Potential Treatment Group Members – Included those earning BA from WA public four-year college experience: 111,830 Potential Comparison Group Members – removed those with Community College experience: 74,243 Potential Comparison Group Members – removed those with post-secondary experience in other states: 54,114 Potential Comparison Group Members – removed out of state high school graduates: 25,342 WDQI Research Report

10. Editing the data - Two Removed observations with invalid data values: (treatment and comparison) leaving a total of 59,023 observation The fourth cohort (2008 graduates) was dropped due to a lack of follow up earnings data. PSM requires using matched pairs of treatment and comparison group members, both with follow up earnings information. We required that earnings data exist in all four quarters of a calendar year for all cohort members. The requirement that both members of the matched pair have UI wage data reduces the number available for analysis. These constraints left 48,252 individuals, evenly split between treatment and comparison groups. WDQI Research Report

11. Editing the data - Three This table summarizes the allocation of the matched groups by year, cohort and gender: WDQI Research Report

12. Cohort dates (available earnings data in bold) WDQI Research Report

13. Chart 1. College earnings premium in 2012 dollars, follow up years 1-7. WDQI Research Report

14. Chart 2. College earnings premium as a percent of HS only group, follow up years 1-7. WDQI Research Report

15. Chart 3. Female college earnings premium, 2012 dollars, follow up years 1-7. WDQI Research Report

16. Chart 4. Male college earnings premium, 2012 dollars, follow up years 1-7. WDQI Research Report

17. Chart 5. Female and male college earnings premium, 2012 dollars, follow up years 1-7. WDQI Research Report

18. Chart 6. Female to male earnings differential, 2012 dollars, follow up years 1-7. WDQI Research Report

19. Chart 7. Female to male earnings percent differential, 2012 dollars, follow up years 1-7. WDQI Research Report

20. Average out of pocket costs of attendance for follow up years 1-5 WDQI Research Report

21. Questions? WDQI Research Report

22. Contact: Toby Paterson Greg Weeks toby.paterson@ofm.wa.govgreg.weeks@ofm.wa.gov (360) 902-0653 (360) 902-0660 WDQI Research Report