1. A WDQI RESEARCH REPORT TOBY PATERSON AND GREG WEEKS FORECASTING DIVISION OFFICE OF FINANCIAL MANAGEMENT MAY 2014 The economic returns to a bachelor’s degree in Washington state & EDUCATION RESEARCH DATA CENTER

2. Study purpose February 2014 WDQI Research Report 2 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.

3. Hypothesized time path of earnings, college graduate and high school groups February 2014 WDQI Research Report 3

4. Study approach February 2014 WDQI Research Report 4 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.

5. Study methodology February 2014 WDQI Research Report 5 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.

6. Study methodology - Two February 2014 WDQI Research Report 6 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.

7. The cohort definitions February 2014 WDQI Research Report 7 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.

8. Extracting, cleansing and merging the data February 2014 WDQI Research Report 8

9. Editing the data November 2013 WDQI Research Report 9 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

10. Editing the data - Two February 2014 WDQI Research Report 10 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.

11. Editing the data - Three February 2014 WDQI Research Report 11 Cohort\Year Treatment GroupComparison Group Row Total 2008200920102011201220082009201020112012 F1(2005)1052102714361538156910521027143615381569 13244 F2(2006)8058648601296165580586486012961655 10960 F3(2007)370474552559962370474552559962 5834 M1(2005)5465358871137138354653588711371383 8976 M2(2006)45846043984111544584604398411154 6704 M3(2007)153145153236580153145153236580 2534 Column Total 338435054327560773033384350543275607730348252 This table summarizes the allocation of the matched groups by year, cohort and gender:

12. Cohort dates (available earnings data in bold) February 2014 WDQI Research Report 12 Years after High School Graduation High School Graduation12345678 Cohort one200520062007200820092010201120122013 Cohort two200620072008200920102011201220132014 Cohort three200720082009201020112012201320142015

13. Chart 1. College earnings premium in 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 13

14. Chart 2. College earnings premium as a percent of HS only group, follow up years 1-7. February 2014 WDQI Research Report 14

15. Chart 3. Female college earnings premium, 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 15

16. Chart 4. Male college earnings premium, 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 16

17. Chart 5. Female and male college earnings premium, 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 17

18. Chart 6. Female to male earnings differential, 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 18

19. Chart 7. Female to male earnings percent differential, 2012 dollars, follow up years 1-7. February 2014 WDQI Research Report 19

20. Average out of pocket costs of attendance for follow up years 1-5 February 2014 WDQI Research Report 20 Average for regional universities Average for research universities CohortTuition/FeesBooks/SuppliesTuition/FeesBooks/Supplies 1$5,622$1,032$7,336$1,028 2$5,953$1,031$7,869$1,022 3$6,364$1,028$8,630$1,019

21. Questions? February 2014 WDQI Research Report 21

22. Contact: February 2014 WDQI Research Report 22 Toby PatersonGreg Weeks toby.paterson@ofm.wa.govgreg.weeks@ofm.wa.govtoby.paterson@ofm.wa.govgreg.weeks@ofm.wa.gov (360) 902-0653(360) 902-0660