The social rates-of-return on higher education in the state of Tennessee.

Abstract

This study extends and adapts the research of earlier studies on human capital and higher education rates-of-return studies to the state of Tennessee. The rates-of-return model is built using age-earning profiles from cross-sectional census data for the state of Tennessee and net public subsidies for higher education by the citizens of Tennessee. The rates-of-return are expressed as internal rates-of-return (IRR), modified internal rates-of-return (MIRR), and net present values (NPV) on a differential basis. The comparison is by gender based on differential earnings for the no-college category contrasted against various levels of attained education categories beyond high school. The benefits to the state of Tennessee for funding higher education are the increased cash flows generated by taxes on the increased earnings and induced earnings associated with higher education. The model concludes with a comparison of the real and nominal rates-of-return on higher education in the state of Tennessee with the expected returns of alternate investments available to citizens of Tennessee.

The study estimates several modules in the development of the rates-of-return on higher education: (1) Net appropriations for higher education. (2) Age-earning profiles for each level of attained education by gender. (3) Workforce entry. (4) Differential earnings between no-college and the various levels of attained higher education. (5) Induced earnings and increased tax collections. (6) Rates-of-return. The model is based on 1992 graduates from institutions of higher learning is the state of Tennessee.

The main finding of this study is that the social rates-of-return on higher education in the state of Tennessee exceed the expected returns on alternate investments available to the citizens of Tennessee in the same risk class. Public subsidies of higher education in the state of Tennessee by the citizenry represent a very good investment. These findings are consistent with the results reported in other state level rates-of-return on higher education studies.