The Economic impact of educational attainment

1
The Economic impact of educational attainment

• An in-the-ballpark estimate based on
  hypothetical situations and their potential
  effects on earnings and tax revenue for the State
  of Nebraska.
• Presented March 6, 2008

2
Hypothetical situations and their potential
effects on earnings and income tax revenue for
the State of Nebraska

• Views educational attainment in terms of earnings
  and tax revenue gained or lost.
• This is not the only way to look at educational
  attainment, but it is a reasonable and logical
  way to look at it.
• We must make some assumptions, which creates some
  limitations of the study. These are listed at the
  end of the presentation.

3
Five Questions

• Question 1
• What if we moved Nebraskas degree holders
  salary differentials to the national average?
• Question 2
• What if our educational attainment levels were to
  rise to that of the best performing state?
• Question 3
• What if our educational attainment levels were to
  rise to
• that of the best performing country?
• Question 4
• What if our educational attainment levels were to
  rise to that of the best performing state or
  country?
• Question 5
• What if we raised the educational attainment of
  blacks and Hispanics to that of whites?

4
Question 1 What if we moved Nebraskas degree
holders salary differentials to the national
average?

• First we must adjust income differential figures
  for cost of living to make figures comparable
  across states.
• Amounts indicate how much more money individuals
  would earn with a postsecondary degree compared
  to a high school diploma.
• Top charts adapted from Higher Education and the
  Future of Nebraska by Dennis Jones, President of
  the National Center Higher Education Management
  Systems.
• Bottom charts are the same figures adjusted for
  the cost of living.

5
Difference in Median Income Associate Degree vs.
High School Diploma
Before cost of living adjustment
Question 1
6
Question 1
Difference in Median Income Bachelors Degree vs.
High School Diploma
Before cost of living adjustment
After cost of living adjustment
7
Question 1 What if we moved Nebraskas degree
holders salary differentials to the national
average?

• Before the cost-of-living adjustment, Nebraska
  was ranked 48th in associate degree salary
  differentials, and 38th in bachelors degree
  salary differentials.
• After adjusting for the cost of living, Nebraska
  moved to 45th in associate degree salary
  differentials, and 27th in bachelors degree
  salary differentials.

8
Question 1 What if we moved Nebraskas degree
holders salary differentials to the national
average?

• In both cases, Nebraska still falls well short of
  the national average.
• Even after adjusting for the cost of living, the
  salary differential is almost as much for an
  associate degree in Texas (13,700) as a
  bachelors degree in Nebraska (16,900).

9
Question 1 What if we moved Nebraskas degree
holders salary differentials to the national
average? What would the annual increase in
earnings be? What would the annual increase in
state income tax revenue be? AnswerTotal
Annual Increase in Median Earnings 927,300,000
Total Annual Increase in Tax Revenue
42,657,000
10
Question 2 What if our educational attainment
levels were to rise to that of the
best-performing state? (Massachusetts) What
would the annual increase in earnings be?What
would the annual increase in state income tax
revenue be? AnswerTotal Annual Increase in
Median Earnings 474,800,000 Total Annual
Increase in Tax Revenue 21,842,000
11
Question 3What if our educational attainment
levels were to rise to that of the
best-performing country?(Canada for associate
and Norway for bachelors) What would the
annual increase in earnings be?What would the
annual increase in state income tax revenue be?
AnswerTotal Annual Increase in Median
Earnings367,900,000 Total Annual Increase in
Tax Revenue 16,921,000
12
Question 4What if our educational attainment
levels were to rise to that of the
best-performing state or country? (i.e. the best
case)(Canada for associate and Massachusetts
for bachelors) What would the annual increase
in earnings be?What would the annual increase in
state income tax revenue be? AnswerTotal
Annual Increase in Median Earnings 502,850,000
Total Annual Increase in Tax Revenue
23,131,000
13
Question 5What if we raised the educational
attainment of blacks and Hispanics to that of
whites? How many more degree holders would
there be?What would the annual increase in
earnings be?What would the annual increase in
state income tax revenue be?
14
Question 5
Population age 25 to 64 by Race/Ethnicity and
Educational Attainment

• Before

• After

15
Question 5

• Answer
• 7,042 more associate degrees
• 22,879 more bachelors or higher
• 6,376 of which are graduate or first
  professional degrees
• Total Annual Increase in Median Earnings
• 427,700,000
• Total Annual Increase in Tax Revenue
• 19,674,000

16
Summary of Additional Earnings

• Only Change Earnings to National Average
• 927,300,000 annually
• Change Educational Attainment to Best State
• 474,800,000 annually
• Change Educational Attainment to Best Country
• 367,900,000 annually
• Change Educational Attainment to best case
• 502,850,000 annually
• Raise Minority Attainment to White levels
• 427,700,000 annually
• Note
• Totals should not be considered cumulative. Each
  total is the result of a separate scenario.

17
Summary of Additional Tax Revenue

• Only Change Earnings to National Average
• 42,657,000 annually
• Change Educational Attainment to Best State
• 21,842,000 annually
• Change Educational Attainment to Best Country
• 16,921,000 annually
• Change Educational Attainment to Best Case
• 23,131,000 annually
• Raise Minority Attainment to White levels
• 19,674,000 annually
• Note
• Totals should not be considered cumulative. Each
  total is the result of a separate scenario.

18
Some Assumptions and Limitations
Assumptions

• We will assume that
• The population age 25 to 64 with an Associate or
  Bachelors degree is employed in a position that
  requires a degree and is earning an appropriate
  salary.
• All additional degree holders will remain
  employed within Nebraska, at jobs that utilize
  their degrees.
• Educational attainment for 25 to 64 year olds is
  the same as 25 and over.
• People age 25 to 64 make up 51 of each
  racial/ethnic group.
• Postsecondary institutions are run as efficient
  businesses and therefore economies of scale apply
  to education costs.
• Graduate and first professional degree holders
  earn the same salary as a bachelors degree.
• No wage discrimination exists in Nebraska.
• The mean annual income for all occupations in
  Nebraska (BLS), 34,300, is representative across
  the population.
• 2006 Nebraska individual income tax rates apply.
• Someone age 34 will work for at least 30 more
  years, without raises.
• Nebraska individual income tax rates remain the
  same for the next 30 years.

19
Some Assumptions and Limitations

• Limitations

• Not a projection of where we could be if things
  changed now, but rather a hypothetical look at
  where we could be now if things had changed in
  the past.
• Does not take into account a business owners
  perspective on raising wages.
• Educational attainment based on a small sector of
  the population, resulting in a conservative
  estimate of earnings and tax revenues.
• Increased education cost for additional degree
  holders not taken into account.

20
For further information contact Kermit
Spade Data Analyst CCPE - Nebraska kermit.spade_at_cc
pe.ne.gov www.ccpe.state.ne.us [phone]