it is amazing how many people, even journalists from reputable newspapers, misquote the Dale, Krueger study to reach conclusions actually opposite from those in the study.
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Two economists, Alan B. Krueger and Stacy Berg Dale, studied the earnings of college graduates and found that for most, the selectivity of their alma maters had little effect on their incomes once other factors, like SAT scores, were taken into account.
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What Dale & Krueger found was actually quite the opposite. One of the main conclusions of the study is:
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| ... we still find a sizable payoff from attending more elite colleges as measured by Barron’s selectivity rankings and tuition costs. |
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| Even after adjusting for selection, however we do find that the school the student attends matters for his or her subsequent income. |
A key finding was that SAT score alone was not a good proxy for selectivity. As soon as they used a more comprehensive measure such as Barron's, significant differences emerged.
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| The characteristics of schools that influence a student’s subsequent income appear to be better captured by Barron’s broad based measure of selectivity than the school’s average SAT score. |
This is not a surprising finding. The most selective colleges use more than just SAT scores for admission.
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In a regression model, men who attend a the most competitive colleges earn 23% more than men who attend very competitive colleges, other variables being equal. In the self-revelation model, the gap is 13%. The estimated effect of attending a most competitive colleges is even more robust for women, 21% in the regression model and 18% in the self-revelation model.
For both men and women, these models indicate that students who attend higher tuition colleges earn more after entering the labor market. |
The 23% difference in income is just between Tier 1 and Tier 2 colleges in the Barron's rankings. Differences were even greater when comparing to lower tier colleges. Even after adjusting for the self-revelation effect, the difference was still 13% for men and 18% for women, hardly insignificant. A finer segmentation using the USNWR ranking would find a significantly greater difference between the very elite colleges and the lower Tier schools. The one such school included in the D&K study (it appears to be Yale) was off the charts.
An interesting but not widely publicized finding of the study was that the more the student payed in tution the more they earned.
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| In addition, we find that students who attend colleges with higher tuition costs tend to earn higher income years later. The internal rate of return on college tuition for students who attend colleges in the late 70’s was quite high, in the range of 20 to 30 percent. |
The authors speculated that the higher the tuition the higher the investment in education by the school.
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College tuition may have a significant effect on subsequent earnings because schools with higher tuition may provide their students with more, or higher quality, resources.
Finally, in the self-revelation models, the expenditure per student variables had statistically significant and positive effects on earnings that were similar in magnitude to the coefficient on tuition from the corresponding model. |
Caroline Hoxby, an economist at Harvard specializing in the economics of education, has done research that confirms many of the Krueger-Dale findings. Using 1997-98 tuition figures, Hoxby concluded that a student who gave up a full scholarship at a Rank Three private college (average SATs: 90th percentile in verbal, 86th in math) to pay full price at a Rank One selective college (average SATs: 96th percentile in verbal, 93rd in math) earned back the difference in cost 3.4 times over his lifetime. Those who moved from paying average tuition at a Rank Three public college to paying average tuition at a Rank One private school earned back the difference in cost more than 30 times over.
So, the main conclusion from the D & K study is that which college you attend
does matter and the more selective the college the greater the difference in future income. This contradicts the widespread belief that an investment in attending an expensive private colleges does not pay. Furthermore, the more you pay the more you earn.
A copy of the report can be found here:
http://www.irs.princeton.edu/pubs/pdfs/409.pdf