Labor Economics: Calculating The Value of Your Degree

 

In this assignment you will use data on starting salaries for a specific major field (finance) and data on the cost of attending college (College of

Southern Maryland) to calculate the value of your own degree and write a brief report (2-page maximum) that details your procedures and findings.

Include an appendix with your Excel tables and a works cited section on separate page at end (does not count towards length requirement) citing any data

and other sources used.

Written material should be typed, 12 pt. font, double spaced with 1 inch margins. Please do not ask me to accept assignments that are not combined, and

please do not exceed the space limit of two written pages of text–my grading will stop there. When you are ready to submit your project, please include

your paper and the file containing your data.
This report should include the following components:
• A description of your projected career path and the assumptions you have made about your salary progression.
• An estimate of the net present value (NPV) of expected lifetime earnings for someone in the major you selected and an estimate of the internal

rate of return (IRR) to an investment in a degree in the major you selected.
• An explanation of your data sources and a discussion of any assumptions you had to make.
• An interpretation and contextualization of your results.
Potential Data Sources:
• The annual salary survey of the National Association of Colleges and Employers (NACE) has information on reported starting salaries for over

400,000 employers across the US.
• The Census Bureau has age-earnings profiles for individuals by education level. Go to Census.gov, click on Tools>>Income &

Poverty>>Income>>Detailed Tables>>Person. The PINC-04 tables will be the most useful for finding starting salaries by age group.
• You should be able to find interest rates (necessary for your NPV calculations) from the US Treasury’s website or from The Wall Street Journal.
• The cost of attendance can be found on the University’s admissions pages or in the Statistical Abstract of the US.
• The BLS (bls.gov) is a great source for information on earnings growth, inflation rates, and expected work life.
Tips for Getting Started

• In thinking about your projected career path, you may want to think about whether you expect to take time off or cut back your work-hours at any

point during your career.
• Do you expect to go on to obtain an advanced degree? In that case, you may instead want to calculate the return to this advanced degree. See

me if you want to do this and aren’t sure where to start.
• You need to use EXCEL or some other spreadsheet program. This will be very helpful in making your NPV and IRR calculations since these

functions are built into Excel.
• Make sure your calculations seem reasonable. If you are calculating a very high IRR, make sure you are taking into account both direct and

opportunity costs.
• Pay careful attention to which costs should and should not be included in your calculations. (e.g. should you include the cost of room and

board?)
• Be sure you use starting salaries for your salary in year 1; otherwise your earnings profile will be inflated.
• Errors in spelling, grammar, and punctuation will result in reduced grades.

 

WE ACCEPT