education and life time wage potential
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Education and Life time wage potential. Chapter 9 Part 1. 40% 30% 20% 10% 0%. MALE FEMALE. PERCENT COLLEGE GRADUATES. 1940 1950 1960 1970 1980 1990 2000. PERCENT COLLEGE GRADUATES AMONG MEN AND WOMEN, AGE 25-34, 1940-2002. - PowerPoint PPT PresentationTRANSCRIPT
Education and Life time wage potential
Chapter 9
Part 1
PERCENT COLLEGE GRADUATES AMONG MEN AND WOMEN, AGE 25-34, 1940-2002
1940 1950 1960 1970 1980 1990 2000
40%
30%
20%
10%
0%
PE
RC
EN
T C
OL
LE
GE
GR
AD
UA
TE
S
MALE
FEMALE
PERCENT COLLEGE GRADUATES BY GENDER AND AGE, 2002
0
5
10
15
20
25
30
35
25-34 35-44 45-54 55-64
AGE
PE
RC
EN
T C
OL
LE
GE
G
RA
DU
AT
ES
MALE
FEMALE
LIFE CYLCE LABOR FORCE PARTICIPATION RATES FOR WHITE WOMEN BY AGE AND BIRTH COHORT
Table 9.1, p. 325
YEAR OF BIRTH AGE 15-24 AGE 25-34 AGE 35-44 AGE 45-54
1886-1895 N.A. 7.7 9.8 10.1
1906-1915 13.3 16.7 25.3 35.6
1926-1935 24.9 26.7 44.4 53.4
AVERAGE YEAR OF WORK EXPERIENCE FOR WORKING WOMEN BY AGE AND YEAR
Table 9.2, p. 327
YEAR
AGE
25 35 45
1920 5.6 11.8 16.4
1950 5.9 10.6 17.0
1980 6.2 11.7 18.3
1986 6.5 13.5 19.3
MEAN EARNINGS BY AGE AND EDUCATION, WOMEN, YEAR-ROUND FULL-TIME WORKERS,
2001Figure 9.1, p. 316
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
M E A N E A R N I N G S
15 25 35 45 55 65
AGE
HIGH SCHOOL GRAD COLLEGE GRAD
Life Earnings by Education Level
• High School 1.36 million
• Vocational Degree 1.71 million
• College Degree 2.31 million
• Master’s Degree 2.81 million
• Ph. D. 3.75 million
• Professional Degree 4.29 million
INTERNAL RATES OF RETURN FOR WOMAN’S COLLEGE EDUCATION WITH
DIFFERENT WORK FORCE PATTERNSFigure 9.2, p. 317
5.36.9
8.8
11
0
2
4
6
8
10
12
WORK ALLYEARS
NO WORK,AGE 25-29
NO WORK,AGE 25-34
NO WORK,AGE 25-39
The Educational Investment Decision
• Opportunity Cost of College Career
• Direct vs. Indirect Cost of College– Direct• College Tuition• Books• Fees
– Indirect• Forgone wage during school years
The Educational Investment Decision
Indirect
Costs
Direct
Costs
High School Graduate
College Graduate
47 yrs
Gross Benefits
The Educational Investment Decision with Discontinuous Worker
Indirect
Costs
Direct
Costs
High School Graduate
College Graduate
47 yrs
Gross Benefits
So what is the Present Value
• First, what is Present Value
yearsofnumberrateersest
FuturetheinValuePV
)int1(
PRESENT VALUE
Orginal Future Value 100 100 100 100 100Annual Interest Rate 20.0% 10.0% 5.0% 2.5% 1.0%
YEAR YEAR YEAR YEAR YEARPV1 $83.33 $90.91 $95.24 $97.56 $99.01PV2 $69.44 $82.64 $90.70 $95.18 $98.03PV3 $57.87 $75.13 $86.38 $92.86 $97.06PV4 $48.23 $68.30 $82.27 $90.60 $96.10PV5 $40.19 $62.09 $78.35 $88.39 $95.15PV6 $33.49 $56.45 $74.62 $86.23 $94.20PV7 $27.91 $51.32 $71.07 $84.13 $93.27PV8 $23.26 $46.65 $67.68 $82.07 $92.35PV9 $19.38 $42.41 $64.46 $80.07 $91.43
PV10 $16.15 $38.55 $61.39 $78.12 $90.53
So what is the Present Value if the Future Value is growing
• What if Value in Future has a growth rate
yearsofnumber
yearsNumber of
)rateinterest1(
)rategrowth1(Futurethein Value
So what is the Present Value if the Future
Value is growing
Original Future Value 100 100 100 100 100Annual Interest Rate 20.0% 10.0% 5.0% 2.5% 1.0%Annual Growth Rate 5.0% 5.0% 5.0% 5.0% 5.0%
YEAR YEAR YEAR YEAR YEARPV1 $87.50 $95.45 $100.00 $102.44 $103.96PV2 $76.56 $91.12 $100.00 $104.94 $108.08PV3 $66.99 $86.97 $100.00 $107.50 $112.36PV4 $58.62 $83.02 $100.00 $110.12 $116.81PV5 $51.29 $79.25 $100.00 $112.80 $121.43PV6 $44.88 $75.64 $100.00 $115.56 $126.24PV7 $39.27 $72.21 $100.00 $118.37 $131.24PV8 $34.36 $68.92 $100.00 $121.26 $136.44PV9 $30.07 $65.79 $100.00 $124.22 $141.84
PV10 $26.31 $62.80 $100.00 $127.25 $147.46
So what is the Present Value if the Future Value is growing at different rates between those with college
degree and those with no college degree
• What if Value in Future has a growth rate
yearsofnumberrateersest
PV)int1(
yearsnumberpremium)collegerategrowth1(FuturetheinValue
Examples
• In the following examples a few assumptions are made:– College cost is covered strictly from de-
saving– Person taking off from work returns to
exact wage prior to leaving work
Example
High School Wage $25,000College Wage $40,000Yearly College Cost $15,000Wage Growth Rate 4.0%Annual Interest Rate 7.0%College Return 5.00%
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
0 $25,000.00 -$15,000.00 -$15,000.00 -$40,000.00 -$40,000.00 $0.00
1 $24,299.07 -$14,018.69 -$14,018.69 -$78,317.76 -$78,317.76 $0.00
2 $23,617.78 -$13,101.58 -$13,101.58 -$115,037.12 -$115,037.12 $0.00
3 $22,955.60 -$12,244.47 -$12,244.47 -$150,237.19 -$150,237.19 $0.00
4 $22,311.99 $43,075.55 $43,075.55 -$129,473.62 -$129,473.62 $0.00
5 $21,686.42 $43,880.70 $43,880.70 -$107,279.34 -$107,279.34 $0.00
6 $21,078.39 $44,700.90 $44,700.90 -$83,656.82 -$83,656.82 $0.00
7 $20,487.40 $45,536.44 $45,536.44 -$58,607.79 -$58,607.79 $0.00
8 $19,912.99 $46,387.58 $46,387.58 -$32,133.20 -$32,133.20 $0.00
9 $19,354.68 $47,254.64 $0.00 -$4,233.24 -$51,487.88 -$47,254.64
10 $18,812.03 $48,137.91 $0.00 $25,092.64 -$70,299.91 -$95,392.55
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
11 $18,284.59 $49,037.68 $0.00 $55,845.73 -$88,584.50 -$144,430.23
12 $17,771.94 $49,954.27 $0.00 $88,028.07 -$106,356.43 -$194,384.50
13 $17,273.66 $50,888.00 $0.00 $121,642.41 -$123,630.09 -$245,272.50
14 $16,789.35 $51,839.17 $0.00 $156,692.23 -$140,419.44 -$297,111.67
15 $16,318.62 $52,808.13 $0.00 $193,181.74 -$156,738.06 -$349,919.80
16 $15,861.09 $53,795.20 $0.00 $231,115.85 -$172,599.15 -$403,715.00
17 $15,416.39 $54,800.72 $0.00 $270,500.18 -$188,015.53 -$458,515.72
18 $14,984.15 $55,825.03 $0.00 $311,341.06 -$202,999.68 -$514,340.74
19 $14,564.03 $56,868.49 $24,021.86 $353,645.51 -$193,541.85 -$547,187.37
20 $14,155.70 $57,931.45 $24,470.87 $397,421.27 -$183,226.68 -$580,647.95
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
21 $13,758.81 $59,014.28 $24,928.27 $442,676.74 -$172,057.22 -$614,733.96
22 $13,373.05 $60,117.35 $25,394.22 $489,421.04 -$160,036.05 -$649,457.09
23 $12,998.10 $61,241.04 $25,868.88 $537,663.98 -$147,165.27 -$684,829.25
24 $12,633.67 $62,385.73 $26,352.41 $587,416.05 -$133,446.53 -$720,862.58
25 $12,279.45 $63,551.82 $26,844.98 $638,688.41 -$118,881.01 -$757,569.42
26 $11,935.17 $64,739.71 $27,346.75 $691,492.95 -$103,469.43 -$794,962.38
27 $11,600.54 $65,949.79 $27,857.91 $745,842.20 -$87,212.06 -$833,054.27
28 $11,275.29 $67,182.50 $28,378.61 $801,749.41 -$70,108.74 -$871,858.15
29 $10,959.16 $68,438.25 $28,909.06 $859,228.50 -$52,158.84 -$911,387.34
30 $10,651.89 $69,717.47 $29,449.41 $918,294.07 -$33,361.33 -$951,655.40
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
31 $10,353.24 $71,020.60 $29,999.87 $978,961.43 -$13,714.70 -$992,676.13
32 $10,062.97 $72,348.08 $30,560.61 $1,041,246.54 $6,782.94 -$1,034,463.60
33 $9,780.83 $73,700.39 $31,131.84 $1,105,166.10 $28,133.96 -$1,077,032.15
34 $9,506.60 $75,077.96 $31,713.74 $1,170,737.47 $50,341.10 -$1,120,396.37
35 $9,240.06 $76,481.29 $32,306.52 $1,237,978.70 $73,407.57 -$1,164,571.13
36 $8,980.99 $77,910.85 $32,910.38 $1,306,908.56 $97,336.96 -$1,209,571.60
37 $8,729.19 $79,367.12 $33,525.53 $1,377,546.49 $122,133.31 -$1,255,413.19
38 $8,484.44 $80,850.62 $34,152.18 $1,449,912.67 $147,801.04 -$1,302,111.63
39 $8,246.56 $82,361.85 $34,790.53 $1,524,027.96 $174,345.01 -$1,349,682.95
40 $8,015.35 $83,901.32 $35,440.82 $1,599,913.93 $201,770.49 -$1,398,143.44
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
41 $7,790.62 $85,469.57 $36,103.27 $1,677,592.88 $230,083.14 -$1,447,509.74
42 $7,572.19 $87,067.13 $36,778.10 $1,757,087.82 $259,289.04 -$1,497,798.78
43 $7,359.89 $88,694.56 $37,465.54 $1,838,422.49 $289,394.69 -$1,549,027.79
44 $7,153.54 $90,352.40 $38,165.83 $1,921,621.35 $320,406.99 -$1,601,214.36
45 $6,952.97 $92,041.23 $38,879.21 $2,006,709.61 $352,333.23 -$1,654,376.38
College
HS Continous Non-Continous
Total $650,630.41 $2,657,340.03 $1,002,963.64
% of HS 100.00% 408.43% 154.15%
% of C-Cl 24.48% 100.00% 37.74%
What if the Interest Rate Goes Down
High School Wage $25,000College Wage $40,000Yearly College Cost $15,000Wage Growth Rate 4.0%Annual Interest Rate 3.0%College Return 5.00%
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
41 $37,151.87 $407,586.88 $172,169.10 $5,197,072.96 $1,212,819.50 -$3,984,253.46
42 $37,512.57 $431,329.80 $182,198.37 $5,590,890.19 $1,357,505.30 -$4,233,384.89
43 $37,876.77 $456,455.81 $192,811.87 $6,009,469.23 $1,512,440.40 -$4,497,028.84
44 $38,244.51 $483,045.47 $204,043.63 $6,454,270.20 $1,678,239.52 -$4,776,030.68
45 $38,615.81 $511,184.04 $215,929.66 $6,926,838.43 $1,855,553.37 -$5,071,285.06
College
HS Continous Non-Continous
Total $1,441,044.39 $8,367,882.82 $3,296,597.76
% of HS 100.00% 580.68% 228.76%
% of C-Cl 17.22% 100.00% 39.40%
What if the Interest Rate Goes UP
High School Wage $25,000College Wage $40,000Yearly College Cost $15,000Wage Growth Rate 4.0%Annual Interest Rate 10.0%College Return 5.00%
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
41 $2,507.30 $27,507.20 $11,619.34 $776,708.11 $18,204.15 -$758,503.97
42 $2,370.54 $27,257.13 $11,513.71 $801,594.70 $27,347.31 -$774,247.39
43 $2,241.24 $27,009.34 $11,409.04 $826,362.80 $36,515.11 -$789,847.69
44 $2,118.99 $26,763.80 $11,305.32 $851,007.61 $45,701.44 -$805,306.17
45 $2,003.41 $26,520.49 $11,202.54 $875,524.69 $54,900.57 -$820,624.12
College
HS Continous Non-Continous
Total $423,607.59 $1,299,132.28 $478,508.16
% of HS 100.00% 306.68% 112.96%
% of C-Cl 32.61% 100.00% 36.83%
What if the College Premium Decreases
High School Wage $25,000College Wage $40,000Yearly College Cost $15,000Wage Growth Rate 4.0%Annual Interest Rate 7.0%College Return 2.00%
College Cumulative Difference
Year HS Continous Non-Continous Con-HS Ncon-Hs Ncon-Con
41 $7,790.62 $27,218.59 $15,198.72 $561,102.21 -$98,536.63 -$659,638.84
42 $7,572.19 $26,964.21 $15,056.67 $580,494.23 -$91,052.15 -$671,546.38
43 $7,359.89 $26,712.21 $14,915.96 $599,846.55 -$83,496.08 -$683,342.63
44 $7,153.54 $26,462.56 $14,776.55 $619,155.57 -$75,873.06 -$695,028.63
45 $6,952.97 $26,215.25 $14,638.46 $638,417.85 -$68,187.57 -$706,605.42
College
HS Continous Non-Continous
Total $650,630.41 $1,289,048.26 $582,442.84
% of HS 100.00% 198.12% 89.52%
% of C-Cl 50.47% 100.00% 45.18%
How will this change if
• Time taking off from work increases?
• College Cost Increases?
• There is a college debt?