39 Chapter 3: Investment analysis A key component in determining the students’ return on investment is the value of their future benefits stream; i.e., what they can expect to earn in return for the investment they make in education. We calculate the future benefits stream to the college’s FY 2021-22 students first by determining their average annual increase in earnings, equal to $13.6 million. This value represents the higher wages that accrue to students at the midpoint of their careers and is calculated based on the marginal wage increases of the CHEs that students complete while attending the college. Using the state of New York earnings, the marginal wage increase per CHE is $135. For a full description of the methodology used to derive the $13.6 million, see Appendix 6. The second step is to project the $13.6 million annual increase in earnings into the future, for as long as students remain in the workforce. We do this using the Mincer function to predict the change in earnings at each point in an individual’s working career.29 The Mincer function originated fromMincer’s seminal work on human capital (1958). The function estimates earnings using an individual’s years of education and post-schooling experience. While some have criticized Mincer’s earnings function, it is still upheld in recent data and has served as the foundation for a variety of research pertaining to labor economics. Card (1999 and 2001) addresses a number of these criticisms using U.S. based research over the last three decades and concludes that any upward bias in the Mincer parameters is on the order of 10% or less. We use state-specific and education level-specific Mincer coefficients. To account for any upward bias, we incorporate a 10% reduction in our projected earnings, otherwise known as the ability bias. With the $13.6 million representing the students’ higher earnings at the midpoint of their careers, we apply scalars from the Mincer function to yield a stream of projected future benefits that gradually increase from the time students enter the workforce, peak shortly after the career midpoint, and then dampen slightly as students approach retirement at age 67. This earnings stream appears in Column 2 of Table 3.2. As shown in Table 3.2, the $13.6 million in gross higher earnings occurs around Year 14, which is the approximate midpoint of the students’ future working careers given the average age of the student population and an assumed retirement age of 67. In accordance with the Mincer function, the gross higher earnings that accrue to students in the years leading up to the midpoint are less than $13.6 million and the gross higher earnings in the years after the midpoint are greater than $13.6 million. The final step in calculating the students’ future benefits stream is to net out the potential benefits generated by students who are either not yet active in the workforce or who leave the workforce over time. This adjustment appears in Column 3 of Table 3.2 and represents the percentage of the FY 2021-22 student population that will be employed in the workforce in a given year. Note that the percentages in the first five years of the time horizon are relatively lower than those in subsequent years. This is because many students delay their entry into the workforce, either because they are still enrolled at the college or because they are unable to find a job immediately upon graduation. Accordingly, we apply a set of “settling-in” factors to account for the time 29 Appendix 6 provides more information on the Mincer function and how it is used to predict future earnings growth.
RkJQdWJsaXNoZXIy MTM2NjgzMA==