The Return to a Sub-Baccalaureate Education:

The Effects of Schooling, Credentials and

Program of Study on Economic Outcomes

> Thomas Bailey\*
>
> Gregory Kienzl\*
>
> Dave E. Marcotte\*\*

\*Institute on Education and the Economy and the Community College
Research Center,

Teachers College, Columbia University

> \*\*University of Maryland, Baltimore County

August 2004

Prepared for the National Assessment of Vocational Education,

U.S. Department of Education

> This report was prepared for the U.S. Department of Education under
> Contract Number ED-00-CO-0023. Elizabeth Warner served as the
> contracting officer's representative. The views expressed herein do
> not necessarily represent the positions or policies of the Department
> of Education. No official endorsement by the U.S. Department of
> Education is intended or should be inferred.

Contents

[List of Tables 4](#__RefHeading___Toc36616178)

[Executive Summary 5](#__RefHeading___Toc36616179)

[I. Introduction 13](#__RefHeading___Toc36616180)

[II. Literature Review 20](#__RefHeading___Toc36616181)

[Postsecondary Education Options 20](#__RefHeading___Toc36616182)

[Returns to a Sub-Baccalaureate Education
23](#__RefHeading___Toc36616183)

[III. Data 28](#__RefHeading___Toc36616184)

[National Education Longitudinal Study 28](#refheading___toc36616185)

[High School and Beyond 32](#__RefHeading___Toc36616186)

[Beginning Postsecondary Students 33](#__RefHeading___Toc36616187)

[IV. Student Sample Demographics 34](#__RefHeading___Toc36616188)

[National Education Longitudinal Study 34](#refheading___toc36616189)

[High School and Beyond 35](#__RefHeading___Toc36616190)

[Beginning Postsecondary Students 37](#__RefHeading___Toc36616191)

[V. Economic Outcomes 38](#__RefHeading___Toc36616192)

[Earnings by Level of Postsecondary Education
38](#refheading___toc36616193)

[Returns to Sub-Baccalaureate Enrollment and Degrees
40](#__RefHeading___Toc36616194)

[Effect of High School Vocational Track 50](#__RefHeading___Toc36616195)

Nontraditional and [Special Populations 51](#__RefHeading___Toc36616196)

[VI. Conclusion 58](#__RefHeading___Toc36616197)

Summary of
Findings......................................................................................58

[Policy Implications 63](#__RefHeading___Toc36616200)

[References 65](#__RefHeading___Toc36616201)

[Tables
.........................................................................................................69](#__RefHeading___Toc36616202)

[]{#__RefHeading___Toc36616178 .anchor}List of Tables

Table 1: Student Sample
Demographics...........................................................70

Table 2: Economic Outcomes by Enrollment and
Degree....................................\...71

Table 3: Economic Outcomes by Gender and Sub-Baccalaureate Program of
Student and
Degree.......................................................................................72

Table 4: Returns to Degree and Enrollment:
Women............................................73

Table 5: Returns to Degree and Enrollment:
Men.............................................\...74

Table 6: Tests of Sheepskin Effects and the Equivalence of Different
Types of Education:
Women....................................................................................\...75

Table 7: Tests of Sheepskin Effects and the Equivalence of Different
Types of Education:
Men..........................................................................................76

Table 8: Estimates From Full Model:
Women.......................................................................................77

Table 9: Estimates From Full Model:
Men........................................................................................\...78

Table 10: Immediate Returns to Degree and Enrollment by Age (Under 24
and 24 and
Over).........................................................................................79

Table 11: Immediate Returns to Degree and Enrollment:
Women..............................80

Table 12: Immediate Returns to Degree and Enrollment:
Men..................................81

Table 13: Returns to Degree and Enrollment by Disadvantaged Status:
Women.............82

Table 14: Tests of Sheepskin Effects and the Equivalence of Different
Types of Education:
Women....................................................................................\...83

Table 15: Returns to Degree and Enrollment by Disadvantaged Status:
Men..................84

Table 16: Tests of Sheepskin Effects and the Equivalence of Different
Types of Education:
Men..........................................................................................85

[]{#__RefHeading___Toc36616179 .anchor}Executive Summary

Over the last 20 years, technological changes in the workplace have
placed considerable pressure on the U.S. educational system to
adequately prepare students for occupations that increasingly require
specific skills. As evidenced by the growing wage gap between high
school and college graduates, employers reward new hires for having the
skills or credentials needed for their jobs, thus underscoring the
importance of having either the requisite "tools in your toolbox" or at
least some basic academic preparation to continue on into postsecondary
education. However, certain educators and policy-makers have raised the
question of whether vocational education at the high school level, with
its focus on immediately entering the workforce after high school,
adequately prepares students for college. At the postsecondary level,
the debate has centered on whether vocational education restricts access
to a four-year college, which may hamper future earnings because
students who begin in occupational programs are less likely to obtain a
bachelor's degree. A small number of studies have examined the economic
payoff for students who enroll in postsecondary occupational programs
compared with high school graduates, but few have investigated whether
the earnings of occupational students are statistically different than
those of students in other types of postsecondary programs. Some of the
criticism about vocational education could be allayed if the economic
benefits are equal to or greater than those of other types of education.

This report, therefore, estimates the returns to a sub-baccalaureate
education. The analyses emphasize the effect of a student's program of
study (occupational or academic), the amount of schooling accumulated
with and without attaining a degree, and the type of credential earned.
We test whether the earnings of degree attainers are significantly
larger than those of similar students with the same amount of
postsecondary education but no credential. This difference is commonly
referred to as the *sheepskin effect*. We also examine whether economic
gains from occupational education are realized not only for students who
concentrated on vocational education in high school but also for special
subpopulations such as older students, racial-ethnic minorities, and
academically or economically disadvantaged students.

The findings in this report are based on three nationally representative
samples of young adults in each of the last two decades, namely, the
Beginning Postsecondary Students Longitudinal Study (BPS89), High School
and Beyond (HS&B), and the National Education Longitudinal Study of 1988
(NELS). BPS89 allows us to examine the immediate economic outcomes of
sub-baccalaureate students approximately one to two years after college,
while HS&B and NELS extend that period to roughly five to seven years.
We measure the benefits to postsecondary education and degrees using the
annual income (in log form) of all individuals from the last observable
year of each study: 1993 in BPS89;[^1] 1991 in HS&B; and 1999 in NELS.
For BPS89 and HS&B, postsecondary enrollment is based on student
self-reported monthly enrollment, which we converted to a full-time
equivalent (FTE) enrollment measure. However, enrollment information
with this level of detail was not available in the last six years of
NELS (from 1994 to 2000). Instead, students were asked to report their
highest degree. Those who had not completed a degree were asked to
estimate the total FTE years of postsecondary education completed, but
this figure is capped at three years. Nevertheless, our NELS estimates
are robust and consistent with previous studies.

The findings from our analysis of economic outcomes are summarized as
follows.

\(1\) *Higher levels of education are associated with more stable and
economically sustaining employment outcomes*. The pattern is
unmistakable: Employment outcomes improve as individuals complete more
years of education. For example, sub-baccalaureate students are more
likely to be employed, work full-time, and have higher pay rates than
high school graduates. However, at similar levels of education, men
enjoy a clear advantage over women. At the sub-baccalaureate level,
nearly 97 percent of men are currently employed whereas 85 percent of
women are. In terms of pay rate, sub-baccalaureate men earn \$3 more per
hour than women. Nevertheless, the difference in employment outcomes
between men and women diminishes as education increases.

\(2\) *Completing a certificate increases women's earnings, but it
provides no statistically significant economic benefit for men.* In the
1990s, women who complete a certificate earn between 15 and 16 percent
more than the average female high school graduate, but the economic
gains are not statistically greater than those of similar women who
complete a year of postsecondary education but do not attain a degree.
In other words, there is no certificate sheepskin effect for women. In
comparison, men who attain a certificate do not earn significantly more
than high school graduates.

\(3\) *Attaining an associate degree is highly beneficial for both women
and men, and this benefit is higher for occupational students than it is
for academic students*. Women who enroll in occupational programs and
earn an associate degree enjoy a substantial premium (39 percent),
compared with women who have no postsecondary education. Evidence also
indicates a significantly positive sheepskin effect associated with an
associate degree for female occupational students. The overall return to
an associate degree for men during the same time period was 16 percent.
Men in occupational programs who attained an associate degree earned
more than those with no postsecondary education. However, the difference
in earnings between men with an associate degree and those with two
years of postsecondary education and no degree are not significant,
indicating little evidence of the existence of a sheepskin effect for
men.

\(4\) *Substantial returns to a bachelor's degree for both genders.* Our
analysis shows that the economic benefit to bachelor's degrees in the
1990s is quite substantial, between 66 and 67 percent higher for women
than similar high school graduates and 37 percent greater for men,
*ceteris paribus*. For both men and women, the returns to a bachelor's
degree is more than four times the return to a year of postsecondary
education for a baccalaureate student without a degree. However, despite
the high returns to the bachelor's degree, the data do not support the
presence of a sheepskin effect.

\(5\) *Students who took postsecondary course work without earning a
credential experienced some economic benefit from their education.*
Women who are in baccalaureate programs but who do not attain a degree
still earn 14 to 15 percent more than women without any postsecondary
education in the 1990s. Women in sub-baccalaureate programs who do not
attain a credential have lower returns to a year of course work than
similar baccalaureate women, but their economic outcomes are still 10
percent higher than of those without any postsecondary education. Men
who do not earn a credential in postsecondary education also experience
economic benefit, but the returns are not as large as they are for
women. Specifically, the economic value of a year of baccalaureate
postsecondary education for men is 10 percent whereas the return to a
year of sub-baccalaureate education for a similar population is 6
percent.

\(6\) *Among sub-baccalaureate occupational students who do not earn a
credential, women experience little economic benefit from their
postsecondary course work while men have modest benefits.* Women who are
in occupational sub-baccalaureate programs but who do not earn a degree
or credential have significantly lower returns to a year of course work
than do similar academic women (5 percent compared with 15 percent). In
contrast, men who are in occupational programs but who do not attain a
degree or credential earn 8 percent more than men without any
postsecondary education and 4 percent more than those in academic
programs.

\(7\) *Occupational sub-baccalaureate students who had a vocational
curriculum in high school earn no more than those without high school
vocational preparation*. The one exception to this finding is for women
who earn associate degrees. Women who had vocational high school
curricula who complete any associate degree experienced significantly
higher earnings than those without high school vocational curricula.
However, small cell sizes raise some doubt as to the robustness of this
finding.

\(8\) *Younger students (under 24 years old) generally experience
economic benefits to postsecondary education while those for older
students are negligible*.[^2] The economic outcomes of older men and
women with postsecondary education were no different (and, in some
cases, worse) than those of similar-aged individuals with no college.
Moreover, some evidence indicates that attaining a certificate lowers
earnings for older students. In contrast, the returns for younger
students who earn a credential are generally positive. Young
occupational women who earn an associate degree get 37 percent higher
economic returns than those without postsecondary education. The return
coefficients are positive for young men with certificate and associate
degrees, but they are not statistically different from the returns of
high school graduates.

\(9\) *Black men earn less than white men with similar levels of
education, but the difference is insignificant for black (and Hispanic)
women when compared with white women*. Black men earn on average 38
percent less than white men irrespective of level of education.[^3]
However, for women, immediate economic outcomes were not statistically
different along lines of race and ethnicity.

\(10\) *For students who are academically challenged, sub-baccalaureate
occupational education can lead to positive earnings outcomes*.[^4] The
average economic returns for academically challenged women who attain an
associate degree are large and significant, roughly 44 percent greater
than those without any postsecondary education. However, women who are
academically challenged and who fail to earn any postsecondary
credential earn no more (or less) than high school graduates.
Academically challenged men experience economic gains from both earning
an associate degree and occupational course work not leading to a
credential. This finding suggests an incentive for academically
challenged women in occupational programs to persist and attain a
sub-baccalaureate degree whereas, for academically challenged men, no
such incentive exists because economic benefits accrue for them with
just postsecondary course work.

\(11\) *Economically disadvantaged students gain economic benefit from
sub-baccalaureate occupational education, though the effects are
different by gender*.[^5] There is a positive and significant effect on
earnings for economically disadvantaged, occupational females who attain
an associate degree, yet they get no significant benefit from
occupational course work without a credential. Conversely, men in this
category experience sizeable returns to occupational course work without
a credential, but those who attain an associate degree realize no
significant additional gains. As with academically challenged students,
women who are in occupational programs and who are economically
disadvantaged have incentive to earn a degree whereas men in this
category do not have a similar economic motivation toward completion.

In summary, our findings generally support the conclusion that students
benefit from sub-baccalaureate education compared with those achieving
only a high school diploma. We also find that among sub-baccalaureate
students, those in occupational programs do economically at least as
well as, and in some cases significantly better than, students in
academic programs. Moreover, those who attain certificate and associate
degrees generally have significantly higher returns to education than
those with similar years of postsecondary education but no credential
(the sheepskin effect), but the difference is often not statistically
significant. However, noticeable differences are evident in the returns
to postsecondary education and degrees by gender, with women generally
experiencing greater economic benefit from schooling and credentials
than men.

[]{#__RefHeading___Toc36616180 .anchor}I. Introduction

During the past two decades, the importance of education beyond high
school in determining economic well-being has grown substantially. By
the early 1990s, economists understood that, for decades, changing skill
demands in the labor market have favored workers with more
education.[^6] Although the large influx of college-educated workers
(created by the entrance of the Baby Boom generation into the workforce
in the 1970s) temporarily suppressed the wage advantage associated with
postsecondary education, by the early 1980s, the large supply shift
abated, and the relative wages of workers with a college education began
a dramatic and persistent increase.[^7]

Though the technological and economic changes affecting the shift in
labor demand are signs of a vibrant economy, they raise concerns about
the economic reality faced by workers without any postsecondary
education whose real wages have stagnated for the past 30 years. In
response to these shifts, most policy-makers and analysts have focused
on efforts to encourage high school students (and perhaps those already
in the workforce) to enroll in postsecondary education. Unfortunately,
policy and research on postsecondary education have tended to focus on
education within four-year postsecondary institutions. Both in the arena
of higher education policy and in the general perception of what
postsecondary education means, two-year or sub-baccalaureate education
receives little attention, and even less attention has been paid to
occupationally oriented education.[^8]

At the bachelor's degree level over the last two decades, the number of
college students majoring in liberal arts or academic subjects such as
English, sociology or chemistry has declined both in absolute numbers
and relatively while applied fields such as health, business, and
education have increased. In fact, occupational fields now account for a
majority of sub-baccalaureate enrollments (Bailey, Leinbach et al.
forthcoming; National Center for Education Statistics 2002). What are
the implications of this trend? Do occupational fields at the
sub-baccalaureate level offer students good opportunities or do they
lead them into educational pathways and occupations that limit their
options and provide more restricted earnings potential?

Because this report is part of the National Assessment of Vocational
Education (NAVE), we have a particular interest in the economic returns
to occupational education. Occupational programs prepare students more
or less directly for work while academic programs presumably provide a
broader education. Many employers want to be able to hire workers who
can start work without initial extensive training. Thus, one hypothesis
might be that sub-baccalaureate students who pursue a more academic
program might be more easily trained whereas those in an occupational
program would need less training to be immediately productive. In
evaluating occupational education, we would like to know what employers
pay for workers with these different types of education. If employers
value the specific preparation of an occupational program, are they, at
least in the relative short run, willing to pay extra? An academic
education at the sub-baccalaureate level may be useful but only as
preparation for completing a bachelor's degree. A wage premium for an
occupational education would suggest that it would make sense for
students to pursue an occupational course of study if they were not
going to go beyond an associate degree.

Data are available to address many of these questions, yet higher
education researchers and labor economists who analyze the returns to
various levels of education have paid little attention to a
sub-baccalaureate education in general and even less to an occupational
sub-baccalaureate education. Many studies of the earnings effect of
education simply use an "undifferentiated years of schooling" variable
or categorize any person without a bachelor's degree but with education
beyond high school as having "some college." Only a handful of studies
have sought to estimate the economic effect of a two-year or
sub-baccalaureate education, with or without a certificate or degree,
and even fewer have attempted to estimate the returns for occupational
students. Moreover, those few analysts who have addressed these
questions have used data from the 1970s and 1980s. The higher education
system, the community college role within that system, the demographics
of the student population and labor force, the nature of the labor
market, and the technological characteristics of jobs have all changed
in the last 30 years, casting doubt on the conclusions implied by these
studies.

This report presents an analysis of the economic returns to
postsecondary education. It adds to the current knowledge in this area
both by focusing on the returns to occupational sub-baccalaureate
education and by using a newly released dataset, the National Education
Longitudinal Survey of 1988 (NELS). NELS comprises a nationally
represented sample of eighth grade students in 1988. To get some
understanding of trends, we also conducted a similar analysis of the
High School and Beyond (HS&B) dataset that is composed of students who
were high school sophomores in 1980. HS&B follows this cohort of young
adults until 1992, when most were in their late 20s. Both of these
datasets provide detailed information with respect to investments in
postsecondary education and economic outcomes from a representative
sample of more than 7,000 men and women who finished high school in the
early 1980s and 1990s. Our analysis is based on data on annual earnings
collected eight years (NELS) and 10 years (HS&B) after scheduled high
school graduation.

We also used the Beginning Postsecondary Students Longitudinal Survey
(BPS89) dataset, which tracks a cohort of first-time beginning students
in the 1989--90 academic year for four years. With BPS89, short-term
(one to two years after college) returns to education are estimated, but
there are several caveats that will be explained in the following
discussion. Unlike NELS and HS&B, a major advantage of this dataset is
that education and work experiences of older students can be observed
(27 percent of the sample are age 24 and older). However, to allow for
at least one year of work experience after leaving college, we had to
restrict the sample to those who completed or left college after six
semesters, which is two semesters fewer than what is typically needed
for a bachelor's degree. We recognize that the estimates from the
restricted sample do not necessarily represent those of all first-time
beginners in BPS89. Therefore, caution must be taken when reading the
returns from this analysis.

In this report, we present findings from our analyses of economic
benefits using the HS&B and NELS data and briefly discuss our analysis
of immediate economic outcomes of special populations using BPS89. Our
analyses have been designed to answer the following questions:

\(1\) What are the average earnings benefits associated with
sub-baccalaureate degrees?

\(2\) How do the earnings of sub-baccalaureate students (those who
complete degrees and those who do not) compare with the earnings of
individuals who have no more than a high school diploma?

\(3\) Do occupational students who earn degrees earn more than those who
complete an equivalent amount of education but do not earn degrees
(referred to as the sheepskin, or program, effect)?

\(4\) Is the sheepskin effect stronger or weaker for occupational
students than it is for academic students?

\(5\) What is the effect of enrollment in a high school vocational track
on the subsequent earnings of sub-baccalaureate students, and does the
high school track have a different effect on the earnings of academic
and occupational sub-baccalaureate students?

\(6\) Is occupational education beneficial for subpopulation groups such
as students who are older, students who belong to a racial-ethnic
minority, or students who are academically or economically
disadvantaged?

This report is structured as follows. First, we provide a brief review
of the literature, with a specific focus on the returns to different
aspects of occupational education. Second, we describe the datasets and
the samples studied here, highlighting both educational experiences and
economic outcomes. Next, we describe average earnings and employment
differences among students in the NELS, HS&B and BPS89 samples who
engaged in various forms of postsecondary study. Finally, we present
results from a variety of multivariate models estimated to identify
returns to enrollment and credentials from sub-baccalaureate programs
and to answer the questions posed above.

To maintain terminological coherence with the other reports we have done
on this subject,[^9] *sub-baccalaureate* refers to those students who
began at a two-year college or those who had a less-than-bachelor's
degree goal at their initial postsecondary institution. In all analyses,
a college student can be either a *baccalaureate* (attending a four-year
college) or a *sub-baccalaureate*. Sub-baccalaureate students are
further divided into *occupational* and *academic*, based on their
initial program of study.[^10] Students who did not declare a major at
their first postsecondary institution are retained in the sample and
identified as such. Throughout this report, when we refer to a *high
school graduate*, we mean a student who graduated from high school but
who has no postsecondary education. In most of our analyses, high school
graduates are the reference category; therefore, the coefficients on
educational variables can be interpreted as the earnings difference
between whatever group the variable represents (say, those who completed
an associate degree) and high school graduates with no postsecondary
education.

[]{#__RefHeading___Toc36616181 .anchor}

II\. Literature Review

[]{#__RefHeading___Toc36616182 .anchor}

Research on the impact on students of enrolling in sub-baccalaureate
educational programs has principally focused on two issues. First,
researchers have examined the role of sub-baccalaureate programs on
educational attainment. Evidence and debate have centered around whether
sub-baccalaureate programs have (or should) facilitate transfer to four
year institutions and degrees. Particularly important here has been the
distinction between vocational and academic sub-baccalaureate programs.
A second major focus of research has been on identifying the ultimate
employment and wage outcomes of sub-baccalaureate education. An
important issue here has been identifying causal effects from
non-experimental data. We turn to each of these major research foci, in
turn.

Postsecondary Education Options

Over the last 20 years, certain educators and policy-makers have
challenged the wisdom of high school vocational education, arguing that
high school studies should be focused on basic academic skills that
provide the foundation for subsequent education.[^11] This argument is
based on the notion, reinforced by the evidence on the growing wage gap
between high school and college graduates, that some education beyond
high school is now necessary to gain access to the types of jobs that
generate enough income to support a family. Thus, high school vocational
programs that prepare students for work immediately after high school
rather than prepare them for college restrict the potential earnings of
students who enroll in them.

The same critique has been leveled against sub-baccalaureate education
and, in particular, occupational programs at the postsecondary level.
Some critics have challenged the economic value of an associate degree,
arguing that these degrees confer little benefit beyond the value of a
high school education (Brint and Karabel 1989; Dougherty 1994).
According to this perspective, community colleges are most effective
when they lead to transfer to a four-year program and, eventually, to a
bachelor's degree. This view would suggest that community college
students would be best served by enrolling in a program oriented toward
transfer. Thus, although occupational programs in community colleges can
lead to a transfer, academic programs are explicitly designed to prepare
students for upper division studies in a bachelor's program, so students
should be encouraged to pursue academic rather than occupational studies
in community colleges.

In contrast, community college advocates suggest that this perspective
is a distorted view of the role of community colleges. Although the
transfer function is one important role of the community colleges, many
students can benefit from a sub-baccalaureate education that does not
lead to a bachelor's degree. According to this view, associate degrees
prepare students for a growing number of technical and technician-level
jobs that play key roles in the economy. While in these jobs, workers do
not earn as much on average as bachelor's degree holders, but they do
earn more than high school graduates, and the education also takes less
time and money. Many community college faculty and administrators will
even argue that students can benefit from education that does not result
in an associate degree. Many students enroll in certificate programs
that take one year or less and others simply enroll in courses with the
objective of learning some specific targeted skills. For students with
these types of well-defined goals, completing all of the requirements
for a degree may not be efficient, leading them to spend time and money
on extra courses that do not serve their needs.

The resolutions of these controversies have profound implications for
the design of our educational system. In another of our reports (see
Bailey, Leinbach et al. forthcoming), we show that millions of students
enroll in community colleges every year and, of those, most are enrolled
in occupational programs. However, a majority of these students neither
transfer nor graduate with associate degrees. We have also shown that
some evidence indicates that, among sub-baccalaureates, occupational
students are less likely than academic students either to earn an
associate degree or to transfer, although that difference is stronger
with respect to transfer than to degree completion (Bailey, Alfonso et
al. forthcoming).

Are these observations an indication of a massive misallocation of
resources? Should community colleges focus on academic transfer-oriented
programs and redouble their efforts to retain students? Or are these
varied outcomes an indication of an efficient allocation of resources
that provides many different levels of education corresponding to the
varied needs of students and the economy? Although students might earn
more by completing their programs of study or by seeking ever-higher
degrees, they would also need to spend more time and resources to
achieve those higher levels of education. This perspective would also
view sub-baccalaureate occupational education in a much more favorable
light. Focused occupational programs would seem to be better suited for
students expecting to work (rather than transfer) after achieving an
associate degree or for those who seek specific skills through either
some collection of courses or short-term certificate programs. Indeed,
the large majority of certificate students are in occupational areas.

[]{#__RefHeading___Toc36616183 .anchor}Returns to a Sub-Baccalaureate
Education

A great deal of empirical research has been conducted over the years to
determine the causal effect of postsecondary education on earnings. The
evidence supports the view that college is a profitable investment: More
schooling leads to higher earnings.[^12] Young people have responded to
those incentives, enrolling in college after high school in increasing
numbers.[^13] But most of the research on the economic returns to
college has focused on the four-year level, even though more than half
of the students who attend college soon after high school enroll in a
community college (National Center for Education Statistics 2002).
Moreover, a majority of students at community colleges enroll in
occupational program of study, but little empirical research has been
conducted to determine whether students benefit economically from these
kinds of programs.

Kane and Rouse (1995) wrote one of the most influential articles on the
returns to a sub-baccalaureate education and, subsequently, wrote a
similar piece for a broader audience (Kane and Rouse 1999). According to
their research, students who attain a baccalaureate degree experience a
10 to 20 percent increase in earnings compared with an associate degree
holder. In addition, the economic returns to a sub-baccalaureate degree
are roughly 15 to 25 percent higher than a high school diploma. The
authors also argue that the return to a year of course work at a
community college is the same as the return to a year at a four-year
college: approximately 5 to 8 percent.[^14] Although some variation
exists in the estimated return to postsecondary education, one
commonality is the existence of a wage premium for those who complete a
degree (otherwise known as the sheepskin effect) compared with those who
have completed similar years of postsecondary schooling but who have not
gotten the credential.[^15] In fact, some have even suggested that
attaining a postsecondary credential appears to matter more than
acquiring work-related skills while in college.[^16]

Grubb (2002) provides a comprehensive review of the research on not only
the returns to sub-baccalaureate credentials but also course work
without degrees. He reports that most analyses find that individuals who
complete associate degrees earn about 20 to 30 percent more than high
school graduates, with estimates for men at the lower end of that range
(and sometimes below the range) and those for women at the higher end of
the range (and sometimes above it). He also concludes that a single year
of course work (without completing a degree) at either a two- or a
four-year school increases earnings by about 5 to 10 percent. Returns to
certificates are varied and often not measurable, but this occurrence
may be because of small sample sizes and the small amount of education
that the certificate represents. Grubb's (2002) work is unusual in that
it focuses on different fields of study at the sub-baccalaureate level.
In general, he finds varied returns to different occupational fields but
concludes that academic associate degrees have little value. Although he
does not present estimates that differentiate between the aggregated
academic and occupational fields, the implication is that the positive
benefits that are found for associate degrees are the result of positive
returns to occupational degrees. Thus, if the overall estimates of the
returns to associate degree are in the 20 to 30 percent range, then the
returns to occupational degrees could be even higher.

Another purpose of this study is to examine whether the effect of
education differs for certain subpopulations such as students who are
older, who belong to a racial-ethnic minority, or who are economically
or educationally disadvantaged. As shown by Bailey, Leinbach et al.
(forthcoming), a disproportionate number of these students attend
community colleges, and they are also overrepresented in occupational
programs. These groups are largely forgotten in the literature on
returns to education, but in the past few years, three noteworthy
studies have been published,[^17] and their findings are summarized in
the following discussion.

Leigh and Gill (1997) estimate the returns for a cohort of older
students---those between the ages 28 and 35. On the one hand, they found
that older female students who earned sub-baccalaureate degrees did not
earn significantly more than those without a credential. On the other
hand, the value of a bachelor's degree to older students over a high
school diploma ranged from 46 percent to 73 percent increases in
earnings, which is quite substantial. Finally, they reported the value
of attending a community college without receiving a credential was
higher for older men than for younger men, which Leigh and Gill (1997)
suggest is because older men are more likely to enroll for specific,
employment-related purposes. Our findings differ slightly from Leigh and
Gill (1997), which may be contributed to the different samples or may
signal a temporal shift in the returns to education for older students.

Education is widely viewed as a means to reduce the inequality in
earnings between racial-ethnic minorities and whites. Given that black
and Hispanic students make up a disproportionately larger share of
community college enrollment, pressure is mounting on sub-baccalaureate
and occupational education to erase the existing disparity. However,
although Averett and D'Allesandro (2001) indicate few statistically
significant differences in the returns to education between black and
white students (which they attribute to small sample sizes), they
identified a consistent pattern in the data: The returns to an associate
degree for blacks are generally higher than returns for whites. The
authors point out that the slightly higher returns for blacks are offset
by lower completion rates, which is a finding supported by Bailey,
Leinbach et al. (forthcoming) using different data.

On final subgroup of interest consists of those who are academically or
economically disadvantaged. With respect to economically disadvantaged
students, Jacobson, LaLonde and Sullivan (1997) estimated the effects of
community college programs in their study of displaced (and hence,
unemployed) workers in Pittsburgh in the early 1980s and in Washington
State in the early 1990s. Most had completed 26 to 30 credits, but
slight gains in earnings resulted. Yet these overall effects masked
substantial differences among fields of study, with sizeable positive
returns to health-related credits and negative effects to basic or
remediation education as well as to the humanities.

Thus, our project extends the research on the returns to
sub-baccalaureate education in three important ways. First, we build on
the work of Grubb and others by focusing on sub-baccalaureate and,
specifically, on occupational education. Second, we examine the
differences in the returns to education for nontraditional, or special,
populations. Finally, although most of the research so far has been
based on data from the 1980s or earlier, this report makes use of the
latest national data, which report information on education in the mid-
and late-1990s.

[]{#__RefHeading___Toc36616184 .anchor}

III\. Data

To study the employment and earnings impacts of sub-baccalaureate
education in the United States, we examine data from three nationally
representative samples of young adults in each of the last two decades.
We make use of data from the National Education Longitudinal Study of
1988 (NELS) High School and Beyond (HS&B), and the Beginning
Postsecondary Students Longitudinal Study (BPS89). The BPS89 allows us
to examine the immediate economic outcomes of sub-baccalaureate students
approximately one to two years after college, while HS&B and NELS extend
that period to roughly five to seven years. Each of these data sets has
its own strengths. Collectively they can enable us to develop a richer,
more informed assessment of the economic impacts of sub-baccalaureate
education on the lives of students. We describe each of these datasets,
and how they were used in our analyses below.

[]{#refheading___toc36616185 .anchor}National Education Longitudinal
Study

The National Education Longitudinal Study of 1988 (NELS) presents data
that track a nationally representative sample of eighth grade students
in 1988 for 12 years. The National Center for Education Statistics
(NCES) conducted follow-up interviews in 1990, 1992, 1994 and 2000. The
information on postsecondary education and labor market experiences was
collected in the spring of 2000, and annual earnings data for 1999 were
used in the NCES analysis. Our analysis of this dataset represents a
compromise between using the most recent data on postsecondary schooling
and being able to track students' employment for a reasonable number of
years. We wanted to observe earnings many years after graduation because
it may take young people some time to settle into their long-term
careers that would, thus, best reflect their earnings potential. But as
the time series lengthens, the data on the students' educational
experiences become out of date. Thus, most of the recent analysis of the
outcomes of postsecondary education has been based on education that
took place during the 1980s or earlier. In the case of NELS, we have
data on education during the mid-1990s, and we have earnings data up to
eight years after scheduled high school graduation and six years after
scheduled graduation from a two-year program.

The NELS data are particularly useful in assessing early outcomes from
schooling because NELS provides detailed information about (a) student
educational tracks, including the highest degree earned, whether or not
the student began at a community college, the type of track (vocational
or academic) chosen in high school and the type of college enrollment
and (b) whether the student attended full time, worked or transferred.
This level of detail in a dataset permits extensive analysis of the
returns to a wide variety of schooling experiences.

Although the NELS data do provide rich information on economic behavior
and early educational investments, the data have an important
limitation. The survey did collect information on degrees received,
types of educational institutions where respondents enrolled and FTE
credit hours. However, the information collected after 1994 is not as
extensive as what was collected between 1992 and 1994.

Between 1992 and 1994 (the period during which most sample students had
just finished high school and either had begun working or had enrolled
in postsecondary education), much more extensive information about the
type, intensity and persistence of college enrollment was collected. We
made use of this information to construct variables characterizing the
educational experiences of the sample. The variables include measures of
whether the student's first enrollment was at the sub-baccalaureate
level and whether the program was occupational or academic. The survey
did not ask students to report in detail on their enrollments after
August 1994. Rather, in 2000, they were asked to report on their highest
degree. Those students who had not completed a degree were asked to
estimate the total FTE years of postsecondary enrollment completed,
which was capped at three years. In other words, all students in NELS
who had spent more than three FTE years in college without earning a
degree were recorded as having spent the same amount of time in college.

An additional limitation of the NELS data is that respondents were not
asked about their total work experience in the years after high school.
Work experience is known to affect observed labor market outcomes.
Because students with no postsecondary education are likely to have more
work experience in the early years after high school graduation, we
anticipated that the failure to control for work experience would result
in underestimates of the true returns to postsecondary schooling.

To limit this problem, we made use of other information collected in the
NELS survey. We divided the years between 1992 and 2000 into two
distinct periods: time in school and time out of school. For the period
when a student was not in school, we assumed he or she worked the same
number of hours that was reported during 1999, the most recent year for
which detailed employment information is available. To estimate the work
experience of a student during the years enrolled in school, we made use
of the detailed employment information collected at the third follow-up
interview in 1994. At the third follow-up, information on the monthly
employment status of each respondent between the 1992 and 1994
interviews was collected. For those enrolled, we observed the number of
months worked while enrolled. We then assumed that the average annual
months worked during this period while enrolled was the same as the
average annual months during any enrollment period after the 1994
interview. We then added the total work experience during all enrolled
periods with the work experience in periods not enrolled to obtain an
estimate, in months, of each sample member's total work experience. We
used this measure of work experience, in quadratic form, in all earnings
analyses.

Each individual in NELS was given a variety of tests to measure their
aptitude in mathematics, reading, science and history. For our analyses,
we used the normalized scores on the math and reading tests, expressed
in quartiles, with the lowest quartile test score serving as the
reference category. Other family background variables used included
family income and highest parental education. Family income was measured
in 13 categories of various ranges, and the midpoint value of the range
was used. For parental education, we created two binary variables. The
first indicates whether at least one parent had enrolled in college or
completed an associate degree and the second indicates whether a parent
had attained a bachelor's degree or higher.

[]{#__RefHeading___Toc36616186 .anchor}High School and Beyond

To develop a sense of the trends in earnings, we also conducted similar
analyses using High School and Beyond (HS&B). HS&B follows a nationally
representative panel of 1980 sophomores for 12 years, or approximately
10 years after their expected high school graduation. The study design
provided for a highly stratified national probability sample of more
than 1,100 secondary schools as the first-stage units of selection. In
the second sampling stage, 36 seniors and 36 sophomores were selected
from each school; overall, more than 30,000 sophomores participated in
the base year (1980) survey. In high schools with fewer than 36 students
in either of these groups, all eligible students were included.
Longitudinal information was collected for less than half of the 1980
sophomore cohort, and no data were collected for 1980 seniors after the
base year. Follow-up surveys were conducted in 1982, 1984, 1986 and
1992.

To control for social and educational backgrounds, math and reading test
scores and family income were used. Highest level of parental education
was also used, and the variable was coded in a way similar to NELS.
Self-reported enrollment and work experience information was collected
in HS&B, so the problems associated with these data in NELS are not an
issue. Students provided starting and ending months for each continuous
period of work with a single employer and for each continuous (excluding
summers) period of enrollment. We do not have information on the
intensity of the work, but we have enrollment intensity from fall 1980
to the end of the survey. Part-time enrollment was coded as one-half the
intensity of full-time enrollment, and less-than-part-time enrollment
was coded as one-quarter the intensity. These weighted enrollment values
were then aggregated to produce a FTE enrollment value, which is used
throughout the analysis.

[]{#__RefHeading___Toc36616187 .anchor}Beginning Postsecondary Students

To estimate the returns to education for older students, we used the
Beginning Postsecondary Students Longitudinal Survey (BPS89), which
consists of individuals who were first-time college beginners at any
time between July 1, 1989, and June 30, 1990. On average, students in
the sample have been out of school two-and-a-half to three years, which
is judged to be sufficiently long enough to estimate the short-term
returns to a sub-baccalaureate education. In addition to the limitations
mentioned earlier, we had to modify the dataset to permit a conventional
interpretation of the estimates. Because BPS89 does not contain a proper
comparison group---students with a high school diploma but no
postsecondary education---one was constructed for the analysis. It
includes students who achieved less than three FTE months of college
experience and did not obtain a formal award. All of the estimates in
the full sample are in reference to this "artificial" high school
graduate group. The full sample includes individuals either who attained
a certificate, associate or bachelor's degree by December 1992 or who
did not obtain a formal award and were no longer enrolled by the same
period.

[]{#__RefHeading___Toc36616188 .anchor}IV. Student Sample Demographics

Before considering analyses of economic outcomes from sub-baccalaureate
education, it is important first to develop a sense of the
characteristics of the students in each of the samples studied here.
This is especially important here, because these data were collected in
different decades, and reflect changes in the demographics of students
enrolled in sub-baccalaureate programs. We present and discuss
descriptive statistics of each sample, in turn.

[]{#refheading___toc36616189 .anchor}National Education Longitudinal
Study

We restricted our analysis of the NELS data to respondents who, at the
time of the 2000 interview, were not enrolled in a postsecondary
institution. We also eliminated students who reported earning a graduate
or professional degree and those whose only postsecondary enrollment
occurred after 1994. This limiting was necessary because NELS provides
very little information on the nature of enrollments for those who
started their postsecondary education after August 1994, and thus, we
were not able to determine whether these students were enrolled in
occupational or academic programs. Finally, we also dropped all
individuals who were still enrolled in 1999. We dropped this group for
the same reason that we dropped students from HS&B who were still
enrolled in 1991.

These restrictions left us with a sample of 7,021 students. As Table 1
shows, 34 percent of the sample enrolled in a sub-baccalaureate program
after high school. This percentage is comparable with the 33 percent
that enrolled in a baccalaureate program. Of those in sub-baccalaureate
programs, most were in occupational programs (18 percent of the total).

Although enrollment in sub-baccalaureate programs is fairly high,
relatively few respondents reported their highest degree as being an
associate degree or a certificate by the year 2000. Only 6 percent of
the sample reported that their highest degree was an associate degree,
and 6.7 percent reported a certificate as the highest degree. By 2000,
30 percent of the sample reported earning a bachelor's degree. Of those
reporting a bachelor's degree as their highest degree, 21 percent of
them started as students in sub-baccalaureate institutions.

[]{#__RefHeading___Toc36616190 .anchor}High School and Beyond

Of the 14,825 sophomores in the HS&B dataset, 7,799 students met the
criteria for selection into the sample. The criteria were that the
students (a) did not attain more than a bachelor's degree, (b) started
college by 1984 and (c) were no longer enrolled in college by December
1990. The first criterion is self-explanatory. The second, excluding
students who delayed their college enrollment more than two years, was
needed to make the sample comparable to NELS.[^18] Finally, students
still enrolled in 1991 were also dropped because our earnings data are
from 1991. A student enrolled in school during 1991 might have lower
earnings because he or she was still enrolled. Moreover, a student in
this sample still enrolled in 1991 probably had more years of education
than average. Therefore, including these students would cause a negative
bias in our estimate of the returns to a year of schooling. Table 1
presents descriptive statistics of the basic educational and demographic
characteristics of the sample. The sample is evenly split by gender.

Overall, high school dropouts (9 percent of the sample) were retained,
along with GED recipients (7.1 percent). Of the students in the HS&B
sample, 38 percent began at a two-year college or had a
less-than-baccalaureate degree goal at a four-year institution, which
qualified them as sub-baccalaureate under the definition applied in this
study. Sub-baccalaureate students were then divided into two categories
based on their initial program of study, academic or occupational.
Nearly 70 percent of sub-baccalaureate students reported an occupational
program of study at their first institution while 22 percent reported an
academic major. The remainder of students did not report a program of
study.

Although no significant difference in race-ethnicity composition and
citizenship status appears to be evident in the male and female
subsamples, discernible variations exist along the schooling and
employment dimensions. Males and females report similar years of
schooling (males, slightly less than two FTE years, and females,
slightly more), but female sub-baccalaureate students were more likely
to choose an occupational program of study. Degree attainment rates,
however, appear to vary by gender, with males more likely to earn a
bachelor's degree and females more likely to attain an associate degree
or certificate. Because females are overrepresented at the
sub-baccalaureate level compared with males, it is not surprising that
they attain sub-baccalaureate credentials at higher rates.

[]{#__RefHeading___Toc36616191 .anchor}Beginning Postsecondary Students

In some respects, the sample of first-time beginners in BPS89 closely
mirrors that of HS&B and NELS. As shown in table 1, the gender and
racial-ethnic compositions and, to a lesser extent, the highest parental
education levels are quite similar across the three datasets. However,
the enrollment and degree information is strikingly distinct. Slightly
more associate degree recipients are present in BPS89 (8.9 percent)
compared with the other two datasets (5 and 8 percent in NELS and HS&B,
respectively), but the most noticeable distinctions are the rates of
certificate and bachelor' s degree attainment, which is to be expected
given the short time frame of the BPS survey. There were three times
more certificate holders and one-sixth fewer bachelor's degree attainers
in BPS89 than in HS&B or NELS. Although far fewer students in the BPS89
dataset received a bachelor' s degree, when expressed as a proportion,
sub-baccalaureate students made up a similar share of bachelor's degree
attainers in BPS as they did in NELS.

Another difference lies in students' initial enrollment. Of the 1,302
observations, nearly 70 percent of the students in BPS89 enrolled in a
sub-baccalaureate program of study, which is twice a large as the sample
in NELS, yet BPS89 showed proportionately fewer occupational majors than
were found in HS&B and NELS. Overall, however, BPS89 indicated nearly
twice as many occupational students as were identified in the other two
datasets.

[]{#__RefHeading___Toc36616192 .anchor}V. Economic Outcomes

Our examination of the economic impact of sub-baccalaureate education
begins with an examination of employment and earnings differences
between individuals who complete different levels of post-secondary
education. This analysis illustrates the basic patterns of the economic
value of post-secondary learning. We then turn to a more focused
analysis of the economic returns to sub-baccalaureate study. We examine
benefits of enrollment in sub-baccalaureate programs as well as
credentials earned in such programs. We examine whether and how these
benefits vary by students characteristics, and among populations of
special interest.

[]{#refheading___toc36616193 .anchor}Earnings by Level of Postsecondary
Education

As a first attempt to understand the economic consequences of
sub-baccalaureate education, we present mean wage and employment
outcomes for the NELS sample as a whole as well as by postsecondary
enrollment and degree. We discuss only the NELS figures because they
more closely represent current economic outcomes. As shown in table 2,
these figures indicate that economic outcomes improved with education in
expected ways. The average wage and salary income in 1999 for the sample
as a whole was \$26,028. Among high school dropouts, mean wage and
salary income was \$20,295. Individuals who enrolled in a
sub-baccalaureate course of study reported earnings of \$25,600, and
those in a baccalaureate course of study earned \$32,804, on average.
Among sub-baccalaureate students, those in occupational programs
reported slightly higher earnings.

Individuals who enrolled in postsecondary education were also much more
likely to be employed. Ninety-one percent of initial sub-baccalaureate
students and 95 percent of initial baccalaureate students were employed
in 2000 whereas only 80 percent of high school dropouts were employed.
Those with a postsecondary education were also more likely to be
employed full-time.

Economic outcomes are similarly higher for students with higher degrees.
Individuals with a general equivalency diploma (GED) reported mean
earnings in 1999 of \$20,280 whereas those with no more than a high
school diploma reported mean earnings of \$23,297. Respondents who
received associate degrees earned \$27,225 on average. The exception is
the relatively low earnings reported by those members in the sample who
received certificates. Among this group, mean earnings were \$22,426.

Table 3 compares separately, by gender, economic outcomes among
sub-baccalaureate students with outcomes among students who have no
postsecondary education. On average, men without any postsecondary
enrollment earned \$26,712 in 1999. Men who enrolled in
sub-baccalaureate education earned \$30,897; those in occupational
programs earned \$32,599. More than 97 percent of men in occupational
programs were employed. For women, those with no postsecondary
enrollment earned \$12,508 on average, and only 67 percent were
employed. Women who enrolled in sub-baccalaureate education earned
\$20,367 on average, and 85 percent were employed. Unlike men, however,
women in occupational programs did not fare significantly better that
those in other sub-baccalaureate programs.

## 

[]{#__RefHeading___Toc36616194 .anchor}Returns to Sub-Baccalaureate
Enrollment and Degrees

To develop a more complete understanding of the economic effects of
sub-baccalaureate education, we estimated a series of models to identify
the returns to years of FTE postsecondary education, highest degree
received, program of study and other features of students' postsecondary
education. The most common model used to derive rates of return
estimates is the Mincerian method using Ordinary Least Squares (OLS). As
shown in equation 1, the specific econometric framework for individual,
i, is

log(W~i~) = X~i~B~X~ + S~i~B~S~ + E~i~B~E~ + E^\^2^~i~B~E\^2~ + u~i~ (1)

where log(W~i~) is the log of observed earnings of individuals, i, who
reported earnings and at least one month of work; X~i~ is a vector of
personal and parental background characteristics; E~i~ represents total
years of work experience; E^\^2^~i~ represents total years of work
experience squared;[^19] and u~i~ is an error term, which is assumed to
be orthogonal to the observed covariates. The coefficient B~S~ is
commonly referred to as the rate of return to education---the percentage
of increase in earnings associated with a change in years of FTE
postsecondary schooling, S~i~.[^20]

We ran separate regressions for men and women because of the different
influences that shape their schooling and work decisions. In all of our
analyses, we also controlled for a student's race, ethnicity, nativity
as well as high school preparation and diploma type. Black and Hispanic
students tend to enroll in occupational programs at higher than average
rates; therefore, if race or ethnicity has an effect on earnings, for
example, through discrimination, then failing to control for these
variables would distort the estimates of the effects of occupational
education. Our controls for work experience were described earlier.

For the primary focus of our analysis, we extended this model to
distinguish between students who chose occupational programs from those
who chose academic majors during their enrollment in sub-baccalaureate
programs. In doing so, we examined the earnings effects of two separate
features of postsecondary education. We were interested in the returns
to individual years of schooling taken by baccalaureate and
sub-baccalaureate students and, within the sub-baccalaureate group,
years of schooling taken by academic and occupational students. In
addition, we measured the effects of completing a certificate, an
associate and a bachelor's degree. Within the associate degree group, we
also measured the returns to degrees earned by students enrolled in
academic and occupational programs.

We further tested whether a statistically significant difference exists
between the returns to a year of postsecondary schooling earned by an
occupational and an academic sub-baccalaureate student and between the
returns to an associate degree earned by these two types of students.
Finally, we tested the independent value of earning a degree over and
above the value of completing the years of schooling required to earn
the degree (the sheepskin effect) to determine whether a sheepskin
effect exists for certificates, associate degrees and bachelor's degrees
as well as for occupational and academic students.

Thus, our full specification is shown in equation (2):

log(W~i~) = X~i~B~x~ + S^bac^~i~B~S~ + S^sub-ac^~i~B~S~ +
S^sub-oc^~i~B~S~ + D^ct^~i~B~D~ + D^aa-ac^~i~B~D~+ D^aa-oc^~i~B~D~+
D^ba^~i~ B~D~

\+ E~i~B~E~ + E^\^2^~i~B~E\^2~ + u~i~ (2)

The baseline model was extended to include four dummy variables for
highest degree completion: a certificate (D^ct^~i~), an associate degree
for an academic student (D^aa-ac^~i~ ), an associate degree for an
occupational student (D^aa-oc^~i~), and a bachelor's degree (D^ba^~i~).
The coefficients on these variables estimated the overall economic
returns to completing these degrees. For some specifications, we
estimate the returns to an associate degree without differentiating
between academic and occupational students.

We also extended the baseline model by changing the years-of-education
variable in two ways. First, we set this variable equal to zero for
every student who earned a degree. For students who did not earn a
degree, we set this variable equal to the FTE years of schooling
reported by the student. The coefficient on this variable is a measure
of the returns to one FTE of postsecondary education for students who
did not complete a degree. We could then compare this coefficient with
the returns to earning a degree to determine whether a student would get
a benefit from completing the degree in addition to the value of the
years of schooling required to earn the degree (the sheepskin effect).
Note that by setting the FTE years of schooling equal to zero for degree
completers, we are potentially losing some information. Some students
may have completed additional years of schooling after completing their
degree, and we are not taking account of this possibility. The effect of
doing so inflated the value of the degrees, and, thus, the sheepskin
effect since the value of any postdegree schooling will be included in
the coefficient for the degrees. But we followed this strategy for two
reasons. First, NELS does not report any years of schooling for students
who complete degrees, so this strategy is the only option that we had.
And, to make the analyses of the two datasets comparable, we also used
this approach for HS&B. Second, this strategy is a commonly used
approach in the literature (see Grubb 1993 and Kane and Rouse 1995), so
using this specification will facilitate comparison to other studies.

We also disaggregated the FTE years of schooling variable by
baccalaureate (S^bac^~i~) and sub-baccalaureate occupational
(S^sub-oc^~i~) and academic (S^sub-ac^~i~) students.[^21] Thus, we could
test whether occupational students benefit more from taking courses
without finishing degrees than academic students. It is important to
emphasize that this specification does not provide a direct test of the
sheepskin effect. The coefficient on the degree variables measures the
total return to the degree including the direct effects of the years of
schooling and the extra effect of the degree (the sheepskin effect). To
test for the sheepskin effect for an associate degree, for example, we
multiplied the coefficient of the FTE years of schooling variable by 2
and compared that with the coefficient on the associate degree. If the
latter was higher, then we could conclude that the student gets an extra
benefit from the degree. We formally tested this hypothesis using an *F*
test of the restriction that twice the coefficient for one FTE year of
schooling is equal to the coefficient for an associate degree.

The central econometric problem with all of these models is that
students are not randomly distributed among the different educational
programs under study. Students who choose to pursue their education
beyond high school may be different from those who choose not to do so.
Those who enroll in baccalaureate programs may differ from those who
enroll in sub-baccalaureate programs. Those in academic majors may
differ from those in occupational majors, and students who complete
degrees may have important differences from those who leave college with
no degree. A comprehensive treatment of these issues would require a
multi-equation structural model with several instrumental variables.
These datasets do not have enough information to analyze this complex
decision process. We could, however, control for family background
characteristics and test scores that reflect academic talent and
pre-college academic performance. Thus, in both datasets, we have
measures of family income, parental educational levels, and scores on
standardized tests taken during high school. These variables can control
for many of the factors that determine student allocation into these
different types and levels of postsecondary education. Nevertheless, it
is important to remember that some returns to degrees or FTE years of
schooling may result both from the effects of the education and from
unmeasured characteristics of students choosing to enroll in those
different types of programs.

Outcomes by Gender

The results of these models, estimated separately for women and men, are
presented in tables 4 and 5. Columns (i) and (iii) of each table show
the results of the basic model in which we included measures of the
years of postsecondary schooling, differentiating between baccalaureate
and sub-baccalaureate students, and an indicator of the highest degree
earned: certificate, associate or bachelor's. In columns (ii) and (iv),
we further divide the sub-baccalaureate years of schooling into those
experienced by occupational students, academic students and students
with no declared major. We also divided the students receiving associate
degrees into those who declared occupational and academic majors and
those with no declared major. Note that all specifications reported in
these tables include controls for years of work experience, family
socioeconomic status and test scores.

Tables 6 and 7 present results from a hypothesis test of sheepskin
effects for certificates, associate degrees for academic and
occupational students, and bachelor's degrees. We also tested the
equivalence of the value of one year of postsecondary schooling for
occupational and academic students, the value of associate degrees for
academic and occupational students, and the value of a year of schooling
for baccalaureate and sub-baccalaureate occupational students.

Outcomes for Students Who Do Not Complete a Degree

The data presented on tables 4 through 9 provide evidence that students
do benefit from postsecondary education, even when they do not complete
a degree. Female students who do not complete a degree earn between 10
percent (NELS) and 14 percent (HS&B) more per year than a high school
graduate. The analysis using NELS suggests that students get a larger
benefit per year of schooling from enrolling in a baccalaureate program
than in an occupational sub-baccalaureate program, which is usually in a
community college (table 6, row 1). The NELS analysis suggests that
women who enroll in occupational sub-baccalaureate programs do not
benefit from years of schooling unless they complete a degree. The
coefficient implies that, if a female occupational student completes one
year of postsecondary schooling, she will earn 5 percent more than a
high school graduate, but the coefficient is not statistically
significant (table 4, column ii). In the earlier cohort (HS&B), female
occupational students experienced a 12 percent return for each year of
postsecondary schooling.

The results for men are mixed. For the later cohort (NELS), the value of
a year of postsecondary schooling is between 6 percent and 10 percent.
Once again, a year of education in a bachelor's program appears to have
higher returns, although that difference is also not statistically
significant. Nevertheless, the HS&B analysis shows no returns to
postsecondary education without a degree, either for baccalaureate or
sub-baccalaureate men.

Outcomes for Students Who Earn a Certificate

Completing a certificate has no statistically significant value for men,
although it does appear to raise women's earnings. The analysis neither
of NELS nor of HS&B indicates a statistically significant non-zero
return to earning a certificate for men. The results presented in table
5 (column ii) indicate that a male occupational student who completes a
year of schooling without completing a degree may earn more than a male
student who completes a certificate, although the difference is not
statistically significant (table 7, row 4). In contrast, in the NELS
analysis, women who completed a certificate earned about 15 to 16
percent more than high school graduates. The analysis of the earlier
cohort (HS&B) suggests an even higher return. Moreover, it appears that
the certificate does raise earnings for women above the earnings of
female occupational students who complete a year of schooling without a
degree, although this difference is not statistically significant (table
6, row 4).

Outcomes for Students Who Earn an Associate Degree

Over the past 20 years, many analysts have expressed skepticism about
the economic value of a community college or sub-baccalaureate
education. Our study suggests that sub-baccalaureate students do indeed
benefit economically from their education. We have already shown that
women benefit from a sub-baccalaureate education even when they do not
complete their degrees, and the analysis of NELS suggests the same for
men, although this conclusion is primarily true for men in occupational
programs. The results presented in tables 4 and 5 on the overall returns
to associate degrees reinforce that positive conclusion. Women who
complete associate degrees earn about 37 percent to 39 percent more than
high school graduates (table 4, columns i and iii) whereas male
associate degree graduates enjoy about a 12 percent to 16 percent
earnings advantage (table 5, columns i and iii). The evidence here
suggests that the associate degree is much more valuable for
occupational students than it is for academic students, especially for
men. Indeed, no statistically significant return to an academic
associate degree for men is evident, and our hypothesis tests show that
the difference between the returns to an associate degree for
occupational and academic students is significant at the 10 percent
level (table 7, row 3). For the later cohort, men with occupational
associate degrees earned almost one quarter more than comparable high
school graduates (table 5, column ii). The returns to an associate
degree for a female occupational student are also higher than for an
academic student, but in this case, the difference is not statistically
significant.

There is also some evidence for a sheepskin effect associated with an
associate degree for sub-baccalaureate occupational students. In the
NELS analysis for women, two FTE years of sub-baccalaureate occupational
education generates about an 11 percent return whereas an associate
degree is worth a 39 percent return for a female occupational student.
Clearly, a statistically significant sheepskin effect occurs for women
in the later cohort (table 6, row 5). The same is true for women in
HS&B, although here it is significant only at the 7 percent level.
However, although both datasets indicate that, for male occupational
students, the associate degree is worth more than twice the value of an
FTE of postsecondary education not resulting in a degree, these
differences are not statistically significant.

How do the returns to occupational associate degrees compare with those
returns for bachelor's degrees? Because it takes twice as long to earn a
bachelor's degree and it costs more than twice as much (since tuition at
four-year schools is greater than it is at two-year schools), we might
expect that the returns to a bachelor's degree would be at least double
those for an associate degree. Indeed, for women in both cohorts and for
men in the later cohort, twice the return to an associate degree for
occupational students equals or exceeds the returns to the bachelor's
degree (tables 6 and 7, row 8). Only in the analysis of men using HS&B
do the returns to the bachelor's degree exceed twice the returns to an
associate degree for occupational students, and this difference is not
statistically significant.

Outcomes for Students Who Earn a Bachelor's Degree

The data displayed in tables 4 and 5 indicate very large returns to
bachelor's degrees. Indeed, according to the analysis of NELS, women who
complete a bachelor's degree earn about two-thirds more than high school
graduates. Moreover, these returns grew during the 1990s.[^22] Although
these estimates are higher than for most previous studies, other studies
have also found high returns to bachelor's degrees. For example, Kane
and Rouse (1995) presented estimates for returns to bachelor's degrees
for women of almost 40 percent, and their data showed that men who
complete a bachelor's degree earn between 35 and 40 percent more than
high school graduates.

Is there a sheepskin effect associated with completing a bachelor's
degree? Certainly the analysis of HS&B for men suggests that men gain a
large benefit from completing their bachelor's degree (table 7, row 7).
Indeed, there are no returns for FTE years of postsecondary education
for baccalaureate students who do not complete their degree (table 5).
Moreover, for all of the other analyses---women in NELS and HS&B and men
in NELS---the returns to the bachelor's degree are more than four times
the returns to a year of postsecondary education for a bachelor's
student. This finding suggests a sheepskin effect. Nevertheless, none of
these differences are statistically significant (tables 6 and 7, row
7).[^23]

[]{#__RefHeading___Toc36616195 .anchor}Effect of High School Vocational
Track

Next, we turn to the question of whether students who had enrolled in
vocational tracks while in high school experienced higher than average
earnings gains from enrolling in sub-baccalaureate occupational
programs. We conducted an analysis of the NELS dataset in which we
included measures of high school track, based on student transcripts, as
predictors of wage outcomes. We included two dummy variables: the first
equal to 1if the student's high school curriculum was vocational, the
second equal to 1 if the student's high school curriculum was academic.
The omitted category is general curriculum, and students concentrating
in general study served as our reference group.[^24]

We first included measures of high school curriculum, by themselves, to
see whether they had any direct effect on earnings outcomes. Next, we
included interaction terms between high school vocational track and (a)
subsequent enrollment in a sub-baccalaureate occupational program and
(b) receipt of an associate degree with a major in an occupational
field. These interaction terms allowed us to test whether those who
study and earn degrees from sub-baccalaureate occupational programs fare
better if they had concentrated in vocational study while in high
school.

The results (not shown here) indicate that, overall for women, there is
no significant direct effect of a high school vocational curriculum on
subsequent earnings in the NELS and HS&B cohorts. In other words, the
coefficients on the measure of concentration in vocational studies in
high school are small and negative, but the coefficients are dwarfed by
their respective standard errors. Our estimates do suggest, however,
that a female student who pursues an occupational track in high school
and who completes an associate degree does benefit from her high school
track.

For men, the data show no evidence of a direct effect of study in a high
school vocational track on wage outcomes. Further, the data show no
evidence that students who enroll in sub-baccalaureate occupational
programs or who earn degrees from those programs fare any better if they
had studied in a vocational track while in high school. However, note
that these are not very powerful statistical tests because cell sizes
are somewhat small. For example, only 40 men in our sample both earned
occupational associate degrees and had studied in a vocational program
while in high school. Given the small sample sizes, we would expect that
only very powerful effects would be picked up in these tests.

[]{#__RefHeading___Toc36616196 .anchor}

Nontraditional and Special Populations

In this section, we examine the extent to which nontraditional and
special populations benefit from a sub-baccalaureate education. We use
the same specification shown in equation 2, but restrict the sample to
the subpopulation of interest---in this case, students who are older, a
racial-ethnic minority, or academically or economically
disadvantaged.[^25] Overall, the findings suggest that sub-baccalaureate
and occupational education are not equally beneficial for all groups,
which is generally consistent with findings in earlier studies. More
important, however, they underscore the point that certain groups are
still struggling economically despite having a higher education and, in
some cases, despite attaining degrees.

Older Students

We begin with an analysis of immediate earnings for older students in
BPS. We use the term *immediate* to differentiate the BPS89 analysis
from NELS and HS&B because, on average, the earnings in BPS89 are
observed after only a year or two postcollege. Some students in NELS and
HS&B could also be out of college a year, but that is more the exception
than the rule. As mentioned previously, because of the way in which the
sample was created, caution should be taken when reading the returns
from this analysis.

As shown in table 10, the economic outcomes of older men and women were
no different (and, in some cases, worse) than similar-aged individuals
with no college. Moreover, some evidence indicates that attaining a
certificate lowers earnings in the first several years after college.
For instance, older women and men who receive a certificate earn roughly
42 percent less than high school graduates. Older men in occupational
programs are significantly worse off if they attain an associate degree.
Their earnings are nearly 78 percent lower than high school graduates.
No sheepskin effect occurs for sub-baccalaureate degrees. However, note
that only 84 observations occur in this analysis, so the short-term
earnings effects for older students should be interpreted with
care.[^26]

Turning our attention to the immediate economic outcomes of younger (age
24 or younger) students, we find that the returns to postsecondary
education are generally positive, but the key is attaining a degree.
Young, occupational females earn 37 percent more than high school
graduates if they attain an associate degree. This coefficient is
statistically different from the return to an associate degree for
academic students, which indicates that a premium, or sheepskin effect,
exists for those completing occupational programs. The coefficients on
certificate and associate degrees are positive for young men, but they
are not statistically different from high school graduates. One possible
explanation for men may be the existence of a strong labor market for
workers with a high school education. Yet, as our long-term earnings
analysis shows, the economic parity between male high school and college
students is short-lived. Our NELS and HS&B analysis shows that, if an
average male occupational student attains an associate degree, his
earnings gains over a high school graduate will materialize in the long
term.

For the most part, the findings from our immediate earnings analysis
agree with those of Leigh and Gill (1997). They found that older female
students who attained a sub-baccalaureate degree did not earn
significantly more than those without a credential. Our findings mainly
support this conclusion. The one exception is that, in our analysis,
females in occupational programs who attain an associate degree earn
substantially more than high school graduates and other
sub-baccalaureate students.

Racial-Ethnic Minority Students

We now turn our attention to racial-ethnic minorities, who have
consistently earned less than whites with the same level of education.
Some evidence indicates that this trend persists into the 1990s,
especially for black men, but the results for women are generally
positive (see tables 11 and 12). As shown in table 12, even after
controlling for a similar set of background characteristics, black men
earn almost 28 percent to 38 percent less than white men immediately
after college. However, the earnings of Hispanic men are statistically
indistinguishable from white men. The findings from BPS89 also indicate
that being a racial-ethnic minority does not have a significant effect
on the immediate earnings of women.

In our analysis of long-term economic effects (tables 4 and 5), black
women do relatively well in the later cohort, and Hispanic women earn
more in the earlier cohort compared with white women. But once again,
black men earn substantially less than whites in both cohorts. We concur
with Averett and D'Allesandro (2001), who point out that higher economic
returns of racial-ethnic minorities are undermined by lower completion
rates, but further analysis is needed to determine other reasons why
these disparities continue to exist.

Academically or Economically Disadvantaged Students

Our final subpopulation analysis involves individuals who are
academically or economically disadvantaged. We define academically
disadvantaged students as those who scored in the lower two quartiles of
a math and reading test administered in tenth grade. We define
economically disadvantaged students as those who earned, or are part of
a family that earned, less than \$20,000 the year before college
attendance. Many of these students enroll in occupational education
because of those programs' less than rigorous academic standards[^27] or
because the student can acquire an employable labor market skill quickly
and at a low cost, which is highly attractive. The key question,
therefore, is whether this economic strategy is beneficial in the long
term.

We begin with academically disadvantaged students. We could not estimate
short-term economic effects for this subpopulation, so our discussion
will focus only on the long-term effects using NELS. As with many of the
findings in this section, the evidence is encouraging, but not for all
groups. As reported in tables 13 and 14, female occupational students
who fail to attain a credential earn roughly the same as high school
students. Moreover, they do not experience the same economic benefit as
academic students, who earn 24 percent more than high school graduates
even without attaining a credential. In fact, female occupational
students could experience a strong incentive to attain at least an
associate degree because the average returns are quite strong: 44
percent. However, because of small sample sizes, we are unable to
determine whether occupational students are at an economic advantage
compared with other program completers or to test for sheepskin effects.
Academically disadvantaged men, in contrast, appear to benefit from
taking occupational course work and from attaining an associate degree
(table 15, column ii, and table 16), but the presence of a positive
sheepskin effect from the associate degree cannot be formally tested.

Our findings suggest that, in the short run, postsecondary education
cannot compensate for being economically disadvantaged. Tables 11 and 12
show that the earnings of economically disadvantaged men and women are,
on average, not statistically different from high school graduates, but
again, this finding may possibly be because of limitations of the
sample. In time, however, postsecondary education can greatly benefit
economically disadvantaged students, particularly men. In fact, even if
they do not attain a formal credential, men experience sizeable returns
to schooling. The benefit to a year of occupational course work is 15
percent, but the return to the same year of academic course work is more
than double (table 15, column iii). The difference between the returns
to a year of occupational and academic course work, however, is not
statistically significant. Overall, attaining a certificate or associate
degree greatly enhances economic outcomes, but if a male occupational
education student attains an associate degree, his earnings are similar
to a high school graduate. This finding may partly explain why associate
degree completion rates for occupational males are low; disadvantaged
men experience no economic incentive to continue and attain a degree.

Unlike men, there is a significant associate degree return, 29 percent,
for female occupational education students who are economically
disadvantaged, but no return to occupational course work. The difference
is large enough that a test for a sheepskin effect was significant at
the 10 percent level. Economically disadvantaged women in academic
programs do not benefit from either enrolling in course work or
attaining an associate degree. Using the same argument as above, the
evidence suggests that women in occupational education programs have a
strong incentive to earn an associate degree and an even stronger
incentive to get a bachelor's degree. Even receiving a certificate will
increase earnings 26 percent over a high school graduate, an option that
may be a more feasible for women who face significant economic
disadvantages.

[]{#__RefHeading___Toc36616197 .anchor}VI. Conclusion

Our findings from data based on a nationally representative sample of
young adults in each of the last two decades generally support the
overall conclusion that students benefit from a sub-baccalaureate
education whether they complete degrees or not, although some
differences occur between men and women and among various
subpopulations. Moreover, occupational sub-baccalaureate students do at
least as well financially as academic students. More surprisingly, we
found less evidence for the sheepskin effect than we expected,
especially for the bachelor's degree, although our analysis probably
understates the sheepskin effect for that degree. We did find a strong
sheepskin effect for associate degrees for female occupational students
and somewhat weaker evidence for male occupational students. In the
following discussion, we review our answers to the six questions that we
posed at the beginning of this report.

Summary of Findings

**1. What are the average earnings benefits associated with
sub-baccalaureate degrees?** We found that, on average (not controlling
for any background variables), with the exception of certificates, each
additional degree was associated with higher earnings. Students whose
highest degree was a certificate earned less, on average (not
controlling for any background characteristics), than students who had
no more education beyond high school. At the sub-baccalaureate level,
occupational students who completed associate degrees earned, on
average, more than academic students who completed those degrees.

**2. How do the earnings of sub-baccalaureate students (those who
complete degrees and those who do not) compare with the earnings of
individuals who have no more than a high school diploma?** In most
cases, we found that sub-baccalaureate students who did not complete
degrees still had higher earnings than high school graduates. For the
analysis of HS&B men, we found no statistically significant effect for
years of postsecondary education for those without degrees, but for
women and for men in the later cohort (NELS), we estimated that an
additional year of sub-baccalaureate education was worth between 5
percent and 10 percent in additional earnings. These findings accord
closely with the conclusions from Grubb's (2002) review. For
occupational students, the return was about 5 percent for women (not
statistically significant) and 8 percent for men. For both sexes and
both datasets, the overall returns to an associate degree for
occupational students were positive and statistically significant. For
men, this estimate rose from 12 percent in HS&B to 26 percent in NELS.
For women, the estimates from both datasets were approximately 39
percent. These estimates are also similar to those reported by Grubb
(2002). Male occupational students benefit much more from an associate
degree than academic students, and the difference is statistically
significant. The estimates for women also suggest that occupational
students who complete degrees benefit more than academic students,
although the difference is not statistically significant. Certificates,
which are overwhelmingly occupational, resulted in higher earnings only
for women (15 percent in NELS). Men who complete certificates do not
earn any more than similar high school graduates. Uneven returns to
certificates have also been found in other studies (Grubb 2002).

**3. Do occupational students who complete degrees earn more than those
who complete an equivalent amount of education but do not earn
degrees?** For occupational students who earn associate degrees, a
sheepskin effect exists for women in both NELS and HS&B and for men in
HS&B. For example, in NELS, female occupational students who complete
two years of sub-baccalaureate education without a degree experience a
return of about 11 percent above the earnings of a high school graduate,
whereas women in occupational programs who earn an associate degree
enjoy a 39 percent earnings advantage compared with a high school
graduate. This difference is statistically significant, which indicates
the existence of a positive sheepskin effect from the associate degree.
For men, earnings rise from 15 percent to 26 percent, but that
difference is not statistically significant.

**4. Is the sheepskin effect stronger or weaker for occupational
students than it is for academic students?** In contrast to the results
for occupational students, no associate degree sheepskin effect occurs
for academic students, but it should be emphasized that, for men in both
NELS and HS&B and for women in HS&B, no statistically significant
overall effect occurs for academic associate degree students. Students
who complete an academic associate degree do not earn more than either
(a) students who complete two years of sub-baccalaureate education but
earn no degree or (b) high school graduates. In NELS, female
occupational students do benefit from academic associate degrees
compared with high school graduates, but they get no benefit from the
degree in addition to the returns to two years of postsecondary
schooling.

**5. What is the earnings effect of enrollment in a high school
vocational track on the subsequent earnings of sub-baccalaureate
students, and does the high school track have a different effect on the
earnings of academic and occupational sub-baccalaureate students?** High
school track has no direct effect on earnings after controlling for
background characteristics and postsecondary enrollment and achievement
variables. However, female occupational students who complete an
associate degree do earn more if they also had a vocational
concentration in high school. This effect is not true for men. These
results should be interpreted with caution, however, because much of the
effect of high school track may operate through its influence on the
type of postsecondary program in which the student enrolls.

**6. Is occupational education beneficial for subpopulations such as
older students, racial-ethnic minorities, academically challenged
students, and economically disadvantaged students?** Unlike older
students, young females in occupational programs receive a substantial
return to an associate degree. This return is statistically greater than
the return to an associate degree for younger academic students, which
is an indication of a degree premium or sheepskin effect. The return to
a certificate and associate degrees is positive for young men in
occupational programs, but they are not statistically different from
high school graduates. However, our long-term economic analysis seems to
suggest that, if a male occupational student attains an associate
degree, he will experience a significant earnings premium over a high
school graduate.

All things being equal, black men continue to earn less than white men
with similar levels of education, and this earnings gap persists over
time. In contrast, black and Hispanic women show positive and
significant earnings gains in the long run, and their earnings are at
least statistically similar to white women in the short term.

For students who are academically or economically disadvantaged, the
results are encouraging, but in no way should occupational education be
considered a panacea. Academically disadvantaged, female occupational
students who fail to attain a credential earn roughly the same as high
school graduates with no postsecondary education, but there could be a
strong incentive for them to attain at least an associate degree because
the average returns are significant. Academically disadvantaged men, in
contrast, appear to benefit from occupational course work and from
attaining an associate degree. Although it does not appear to affect
short-term economic outcomes, an occupational postsecondary education
can greatly benefit economically disadvantaged students, particularly
men. Even if they do not attain a degree, economically disadvantaged men
experience sizeable returns to occupational course work, but the gains
are not realized for those who attain an academic associate degree. In
comparison, a significant associate degree effect occurs for
occupational females who are economically disadvantaged, but women in
this group experience no return to occupational course work. Thus, a
strong incentive exists for economically disadvantaged women in
occupational programs to persist and attain a sub-baccalaureate degree,
an incentive that does not exist for men.

The results presented in this report suggest a generally positive
picture of postsecondary occupational education. For sub-baccalaureate
occupational students, the returns to a year of postsecondary education
are close to or equal with the returns to a year of schooling for a
student in a baccalaureate program or a sub-baccalaureate academic
student. The value of an associate degree for an occupational student
often exceeds the value of an associate degree for an academic student
and, in some cases, exceeds one-half the value of a bachelor's degree.
Occupational programs appear to be particularly useful for students
whose highest credential is an associate degree.

[]{#__RefHeading___Toc36616200 .anchor}Policy Implications

Two broad policy conclusions emerge from this analysis. First,
sub-baccalaureate occupational education is a viable and productive
educational alternative for many students. In general, students pursing
an occupational program in a community college do not suffer in the
sense that they earn less than either baccalaureate or academic students
with equivalent amounts of education. Indeed, some evidence indicates
that they earn more than academic students. Thus, Congress can continue
to support sub-baccalaureate occupational education and be confident
that, on average, students will benefit from the programs supported.

Second, earning an associate degree is important. In general,
sub-baccalaureate students benefit from years of postsecondary schooling
even if they do not complete a degree, although our analysis of NELS
shows no independent years-of-schooling effect for female occupational
students. Thus, a very large and statistically significant sheepskin
effect occurs for female occupational students who earn an associate
degree. For male occupational students, the value of an associate degree
considerably exceeds the value of two years of a sub-baccalaureate
education, although the difference is not statistically significant.
Thus, although many students do appear to benefit from a community
college education without earning a degree (as many college personnel
argue), students, especially women, can gain significant additional
benefits from graduating. And although our analysis has shown that a
sub-baccalaureate academic education has lower returns than an
occupational education, we suspect that it is because most of the
benefits for these students would come from transfer to a bachelor
program and completion of a bachelor's degree. Thus, completion and
transfer are important objectives for sub-baccalaureate students, and
Congress should develop strategies and incentives to encourage students
to achieve these educational outcomes.

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Review* 51(1): 1--17.

U.S. Department of Commerce. 2001. *October current population surveys*.
Washington, DC: Bureau of the Census.

Wine, Jennifer S., Whitmore, Roy W., Heuer, Ruth E., Biber, Melissa, &
Pratt, Daniel J. 2000. *Beginning Postsecondary Students Longitudinal
Study First Follow-up 1996-98 (BPS:96/98) Methodology Report* (NCES
2000-157). Washington, DC: U. S. Department of Education, National
Center for Education Statistics.

Zahs, Daniel, Pedlow, Steven, Morrissey, Marjorie, Marnell, Patricia, &
Nichols, Bronwyn. 1995. *High School and Beyond Fourth Follow-Up:
Methodology Report*. Washington, DC: U.S. Department of Education,
National Center for Education Statistics.

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[^1]: We caution the reader when examining the economic returns analysis
    using BPS89. To allow for at least one year of work experience after
    leaving college, we restricted the BPS89 sample to those who
    completed or left college after six semesters. Although this period
    is sufficient time for most sub-baccalaureate students to earn a
    credential, it is two semesters fewer than what is typically needed
    for a bachelor's degree. Thus, our economic outcome results for
    baccalaureate students in BPS89 are weak.

[^2]: Small sample sizes for older students in BPS89 may make the
    accuracy of these findings problematic.

[^3]: The sample sizes in the BPS89 and NELS datasets do not allow us to
    distinguish between occupational and academic students among
    different racial-ethnic groups.

[^4]: For the purposes of this study, we define "academically
    challenged" as any postsecondary student ranked in the lower two
    quartiles of those taking the standardized reading and math tests
    administered in 12th grade as part of the NELS survey.

[^5]: For the purposes of this study, we define "economically
    disadvantaged" as any postsecondary student whose total family
    income in the year before starting postsecondary education was less
    than \$20,000.

[^6]: See Levy and Murnane (1992) for an early review.

[^7]: Murphy and Welch (1989, 2002) have written extensively on wage
    inequality, but this strand of research is beyond the scope of this
    study.

[^8]: Community colleges are two-year postsecondary institutions that
    primarily award associate degrees. This category includes junior
    colleges but not vocational-technical institutes and many
    proprietary schools.

[^9]: Bailey, T., M. Alfonso, M. Scott, D. T. Leinbach, G. Kienzl, B.
    Kennedy, and D. Marcotte (Forthcoming);

    Bailey, T., D. T. Leinbach, M. Scott, M. Alfonso, G. Kienzl, B.
    Kennedy, and D. Marcotte (Forthcoming).

[^10]: Our classification of majors is based on Choy and Horn (1992) and
    further discussed in Bailey, T., D. T. Leinbach, M. Scott, M.
    Alfonso, G. Kienzl, B. Kennedy, and D. Marcotte (Forthcoming).

[^11]: See Eaton (1993) and Dougherty (1994) for comprehensive reviews.

[^12]: Schultz (1961), Becker (1964) and Mincer (1974) are considered to
    be the forefathers of the early empirical work. For a more recent
    review of the literature, see Card (1999) and Grubb (2002). Grubb
    (2002) offers a thorough review of recent studies conducted on the
    return to a sub-baccalaureate education.

[^13]: In 1972, about half (49 percent) of all high school completers
    between the ages 16 to 24 enrolled in a two- or four-year college
    immediately after high school. A generation later, the proportion of
    young adults in college increased to 63 percent (U.S. Department of
    Commerce 2001).

[^14]: Of course, the quality of two- and four-year institutions may
    lead to measurable differences in earnings, but this point is beyond
    the scope of this report.

[^15]: Kane and Rouse (1995) do find a positive sheepskin effect but
    argue that there are still benefits to accumulating credits without
    a degree. Heineman and Sussna (1977); Blair, Finn and Stevenson
    (1981); and Jaeger and Page (1996) also find sheepskin effects.

[^16]: See Card (1999) for a discussion.

[^17]: See Leigh and Gill (1997); Averett and D'Allesandro (2001);
    Jacobson, LaLonde and Sullivan (1997).

[^18]: We made an equivalent exclusion in NELS because, for students who
    enrolled initially after 1994, the survey did not provide enough
    information for us to categorize students as academic or
    occupational.

[^19]: The standard Mincerian wage equation typically includes a
    quadratic term for work experience to pick up declines in
    productivity (or hours worked) later in the life cycle.

[^20]: It is common to interpret coefficients from log-linear models as
    percentage change. We adopted this convention here because almost
    all of the research on the returns to sub-baccalaureate education
    does so (see Grubb 2002 and Kane and Rouse 1999). It facilitates a
    comparison between our results and those in the literature. This
    comparison is only an approximation, however. More precisely, one
    must exponentiate coefficients and subtract one (*e^b^* -1) to
    obtain the effect of a one unit change in an independent variable as
    a percentage change in a dependent variable. This approximation is
    accurate for coefficients of .2 and below. Thus, a coefficient of
    0.2 actually represents a return of 22 percent. But the distortion
    is greater for larger coefficients. For example, a coefficient of
    0.5 represents a return of 65 percent. Thus, this distortion will be
    greatest for estimates of the returns to bachelor's, but our focus
    is on the returns to sub-baccalaureate education and degrees, so the
    problem will be less serious for those issues that are of most
    concern to us.

[^21]: In some specifications, we aggregated all sub-baccalaureate
    students.

[^22]: We have previously suggested that our specification may result in
    an overestimate of the returns to degrees because we do not take
    account of any credits or time in school spent subsequent to earning
    the highest degree. If a student benefits from this kind of extra
    education, then that benefit will be reflected in the returns to the
    degree. However, we are interpreting the coefficients as the returns
    to education. As we have pointed out, these coefficients should be
    exponentiated to derive the returns. This process will cause the
    most problems when the coefficients are large; therefore,
    interpreting the coefficients as the percentage returns to education
    will cause the largest underestimation of those returns to the
    bachelor's.

[^23]: Using the exponentiated coefficients for these tests is more
    likely to find a sheepskin effect; therefore, the estimates
    presented here are an underestimate of the value of completing a
    degree compared with accumulating an equivalent *amount* of
    postsecondary education.

[^24]: Because of the transcript-derived information about high school
    curriculum in NELS, we are able to define high school track only for
    those students who graduate from high school. Consequently, we are
    forced to eliminate high school dropouts and GED recipients from the
    analyses of the subsequent earnings effects of vocational high
    school study.

[^25]: Note that, in some instances, the restricted samples left too few
    observations in certain key cells, which can compromise the
    reliability of the estimates. If the restricted sample was too
    small, we estimated the direct effect of the subgroup by adding a
    dummy variable to the model. We also added a series of enrollment
    and degree interactions to estimate the indirect effect.

[^26]: As stated earlier, the findings using NELS and HS&B are much more
    reliable than the short-term analysis, but it is still possible that
    our long-term economic outcomes analysis underestimates the effects
    of these background variables because they may influence earnings by
    increasing the probability that students will enroll in particular
    types of education. For example, we do know that students from
    lower-income families are more likely to enroll in sub-baccalaureate
    education. Thus, the coefficients on these educational variables
    will absorb some of the overall effect of low socioeconomic status.

[^27]: In some cases, no remediation or developmental education is
    offered in occupational programs of study.