Enhanced Earnings of a UW-Whitewater
Graduate Degree
A Synthetic Analysis
Russ Kashian, PhD
Department of Economics
University of Wisconsin – Whitewater
kashianr@uww.edu
Joshua Bechard
Contact Author’s Information:
Russell Kashian
Department of Economics
University of Wisconsin – Whitewater
kashianr@uww.edu
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Contents
Executive Summary....................................................................................................................................... 2
Literature Review .......................................................................................................................................... 3
Introduction .................................................................................................................................................. 5
Education as an Investment .......................................................................................................................... 5
Tuition & Forgone Income ........................................................................................................................ 5
Enhanced Earnings .................................................................................................................................... 6
Enhanced Earnings Lead to Greater Tax Benefits ..................................................................................... 7
Methodology................................................................................................................................................. 7
The Big Picture: Master’s Degrees at UW-Whitewater ................................................................................ 8
Estimating the Income Stream.................................................................................................................. 8
Scenario 1: Master’s Student Chooses Not to Work (Forgone Income) ................................................. 10
Scenario 2: Master’s Student Chooses to Work (No Forgone Income) .................................................. 10
The Business Master’s Degree .................................................................................................................... 11
Estimating the Income Stream................................................................................................................ 11
Scenario 1: Business Student Chooses Not to Work (Forgone Income) ................................................. 12
Scenario 2: Business Student Chooses to Work (No Forgone Income) .................................................. 12
Another Likely Scenario for the Business Master’s Student ................................................................... 13
The Education Master’s Degree .................................................................................................................. 13
Estimating the Income Stream................................................................................................................ 14
Scenario 1: Education Student Chooses to Not to Work (Forgone Income) .......................................... 15
Scenario 2: Education Student Chooses to Work (No Forgone Income) ................................................ 15
Benefits to the State of Wisconsin.............................................................................................................. 15
Increased Tax Revenue ........................................................................................................................... 15
A Healthier Economy .............................................................................................................................. 16
Conclusion ................................................................................................................................................... 16
References .................................................................................................................................................. 18
1
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Executive Summary
This report seeks to define the value of an advanced degree from the University of Wisconsin –
Whitewater. The value of any degree can be considered in two different contexts: the value to the
individual and the value to society. While there are many intangible and immeasurable benefits of an
education to both an individual and to society, this analysis focuses primarily on the tangible aspects.
For an individual, the tangible value of a degree can be defined by a level of earnings that is
greater than the level of earnings one would experience without the degree. The difference between
these two figures is enhanced earnings, which are calculated annually in this analysis. Advanced degree
holders in general from UW-Whitewater experience more than $13 thousand in enhanced earnings a
year compared to their counterparts with only a bachelor’s degree. Education graduates usually see an
additional $9.6 thousand a year while business graduates can see up to $25 thousand a year as a result
of their degree.
When the cost of an education is taken into account, a rate of return on the investment in
education can be established. This rate allows one to compare an investment in education with various
financial instruments. Graduates generally see rates of return between 8.45% and 10.45% annually on
their investment in an education through retirement, depending on their program and age at
graduation.
Society benefits greatly from advanced degree holders in the form of increased tax revenue
resulting from higher incomes. For every UW-Whitewater advanced degree graduate who remains in
the state after graduation, Wisconsin collects nearly $35 thousand in additional tax revenue throughout
their lifetimes as a result of their increased income levels. If 75% of graduates remain in the state after
graduation, Wisconsin has already seen more than $128 million in additional state tax revenue starting
with the class of 1974.
This analysis provides a framework to measure the tangible benefits of an investment in
education to both the individual and society. In this context, an investment in education is almost
always worth the cost.
2
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Literature Review
In the field of labor economics especially, many studies have been conducted to determine what
factors influence a worker’s earnings. In 1974, economist Jacob A. Mincer outlined the Human Capital
Earnings Function (HCEF) in Schooling, Experience, and Earnings. The function included earnings (𝑌),
years of schooling (𝑆), years of experience (𝑋) and a statistical residual (𝑒), and is represented in the
equation below:
𝑙𝑜𝑔𝑌 = 𝑏𝑆 + 𝑐𝑋 + 𝑑𝑋 2 + 𝑒
According to David Card at the University of California – Berkeley, using education level and work
experience in this way yield consistent and predictable coefficients for education and experience, which
help to explain between 20-35% of the variation in earnings among workers.
In the U.S. Census Bureau’s study, The Big Payoff: Educational Attainment and Synthetic
Estimates of Work-Life Earnings, income data was compared across different levels of education.
Workers with an undergraduate degree, on average, earn roughly 72% more each year than workers
with only a high school diploma. This trend continues as the level of education increases: master’s level
workers earn 19.3% more than bachelor’s level workers. A doctoral degree earns 43.5% more than a
master’s degree. Furthermore, the Census study shows that the earnings gap between high school level
workers and workers with a college or advanced degree is growing each year. Census data shows that
obtaining a higher level of education is becoming more and more vital, as it is a strong determinant of
income. In order to determine if pursuing higher education is an optimal decision however, the cost of
an education must be compared to its benefits, and an interest rate can be found to compare it with
other investments.
In 2008, University of Wisconsin – Superior conducted a study analyzing their institution’s
economic impact. The paper examined the university’s economic impact from to primary angles: the
impact that the university has on the local economy, and the economic value of a UW-Superior
education to students and to the state of Wisconsin. This study draws heavily from the second section
in UW-Superior’s report. In constructing a model for examining the returns of higher education,
Superior used an enhanced earnings curve to track the earnings of high school graduates and their
college counterparts over the course of their careers. Due to the fact that college graduates pay tuition
and give up earnings to attend school, their earnings are significantly lower than comparable high school
graduates at the beginning of their adult lives. Upon graduation, college graduate earnings raise beyond
the earnings of a high school graduate, and both curves continue to increase for the remainder of the
workers’ lifetimes. Comparing the costs and the benefits of attending college boils down to measuring
the differences in income during a worker’s college years and comparing it to the difference in income
after graduation.
The UW-Superior study then went on to define the cost of college (composed of tuition and
forgone income) in a number of different scenarios. While tuition remains relatively constant over the
student population, the choice to work while in school varies wildly from person to person. Forgone
3
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
income is the biggest component to the cost of an education; multiple scenarios were given to describe
the cost of an education for different types of students. The extra income associated with a college
degree (or enhanced earnings) was determined in the Superior study to be $34,306 per year on average.
This isn’t to say that college graduates earned roughly $34 thousand more than their high school
counterparts the first year after graduation. Rather, their enhanced earnings started relatively low after
graduation, increasing at a linear rate throughout the graduate’s career. An internal rate of return was
determined upon comparing the cost and benefits of higher education.
While similar to the methodology in the UW-Superior Economic Impact Study, this paper differs
on several points. First, income streams for high school and college graduates were modeled to be nonlinear to account for changing rates of wage increases throughout a worker’s career. While there is still
a focus on the average earnings of graduates from all programs, there is a close examination of the
earnings of graduates from specific programs, since earnings vary with the field a graduate is entering.
Finally, a rate of return is determined using the cost of an education (tuition and forgone income) as
principal and each year’s enhanced earnings as a payment stream through retirement at age 65.
4
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Introduction
It is clear to the casual observer and the professional educator that the cost of higher education
has increased dramatically over the past forty years. This is true of both an undergraduate education
and a graduate education. While this is a worrisome trend, it needs to be reviewed in context of the
alternatives offered to individuals whose terminal degree is an undergraduate degree. This report
examines the investment in a graduate education relative to its alternative. The first section of this
report examines the value of a graduate degree at UW-Whitewater compared to the earnings of the
recipient of an undergraduate degree. The second section investigates the earnings of master’s degree
recipients in the College of Business and Economics and the College of Education. Finally, the last
section briefly examines the tax benefits afforded to the state of Wisconsin resulting from the increased
earnings of UW-Whitewater master’s degree graduates.
Education as an Investment
Education is often referred to as an investment, with certain costs and benefits. In the case of
public institutions such as UW-Whitewater, the cost of an education isn’t carried by the student alone—
universities, and ultimately the state, are contributing to the investment. This is because both
individuals and public policy makers expect to receive some benefit from higher education. What is the
value of a graduate level education to both an individual and society? This value takes several forms.
The most apparent is the enhanced earnings the student ultimately receives in the workplace for their
valuable knowledge and talent. The second value is the positive externality enjoyed by the community
when this graduate adds to the overall income base of the state. The third value is the psychological
and intellectual benefit accrued to the graduate from the knowledge and enjoyment their university
education offers them.
Tuition & Forgone Income
Obtaining any degree at UW-Whitewater involves two primary costs. The first is the cost of
tuition. The second is the income an individual forgoes by attending graduate school.
While tuition remains relatively constant across all students, forgone income can vary
dramatically depending on if a particular student chooses to work while earning a degree. Forgone
income is the largest component of the opportunity cost of earning a degree, both graduate and
undergraduate. To determine how much income a student forgoes while attending graduate school a
combination of data sources is used, including national income data for workers who earn only a
bachelor’s degree, and income data obtained from a recent survey of UW-Whitewater alumni. This
report examines a number of scenarios regarding the bachelor’s degree choices of graduates of various
UW-Whitewater masters’ programs, as well as the graduate student’s decision to remain in the
workforce while earning a degree. There is very high variation in the category of forgone income; given
that it is potentially the highest component in the cost of a degree, rates of return for individual
graduates will vary wildly depending on individual circumstances.
5
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
The cost of tuition for a degree ranges from $15,664 to $16,772, depending on the graduate
program in question. Forgone income ranges from $77,008 to $98,089 depending on the type of job
being given up (business, education, or general).
Enhanced Earnings
As stated earlier, higher education is an income-earning asset and a social asset. This study
focuses on the income-earning asset, which begins with individual enhanced earnings and ultimately
translates into increased state tax revenues.
Enhanced earnings equal the difference between what a worker earns with a particular degree
verses what they would have earned without that degree. Enhanced earnings can be seen as the payout
from a worker’s investment in an education. The figure below depicts (in a theoretical framework) the
lifetime earnings of both university and high school graduates:
The blue line represents bachelor’s degree level earnings from the point of graduation into retirement.
The green line represents this same information for graduate students, but is noticeably different.
Rather than producing a smooth curve, the first two years of income appear to cross over into negative
territory. This represents a situation in which income is forgone (the space between the blue line and
zero) and tuition is being paid (the space between zero and the green line). After graduation, the green
line (master’s level earnings) rises above the blue line (the earnings of their bachelor’s level
counterparts). At this point, the income benefits of a master’s degree begin to be seen, and will
accumulate over time. The difference between the blue and green lines is considered enhanced
earnings.
Eventually, enhanced earnings will accumulate to a point where they will surpass the original
cost of the degree (tuition in addition to forgone income). We will refer to this moment in time as the
6
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
“break-even” point. In other words, the break-even point is the length of time after graduation where
the degree has completely paid for itself in terms of higher income.
When education is seen as an investment, with a known cost and known payouts, an interest
rate may be calculated to compare the educational investment with other available investments (savings
accounts, the stock market, etc.). Interest rates will be associated with different scenarios in graduatelevel education (type of program, level of income forgone, etc.). Two interest rates are calculated for
each scenario: the first is the rate required to double an educational investment by the break-even
point and the second is the rate required to produce a stream of payments whose sum is equivalent to a
graduate’s cumulative enhanced earnings through retirement.
Enhanced Earnings Lead to Greater Tax Benefits
As the income of a citizen rises, so do the income revenues of the state. Since most graduates
fall under the 6.5% Wisconsin state tax income bracket, one can argue that for every dollar of enhanced
earnings a graduate receives as a result of his or her degree, the state sees an additional 6.5 cents in tax
revenues. These additional revenues will be projected and described in the last section of this report.
Methodology
The UW-Whitewater Alumni Survey was conducted in the summer of 2010, and collected
information on more than 3,000 graduates of all educational levels. Several curves were constructed,
indicating earnings by age by program and educational attainment. The equation of each curve was
determined by OLS regressions resembling the following:
2010 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝛽0 + 𝛽1 𝑦𝑒𝑎𝑟𝑠𝑊𝑜𝑟𝑘𝑖𝑛𝑔 + 𝛽2 𝑦𝑒𝑎𝑟𝑠𝑊𝑜𝑟𝑘𝑖𝑛𝑔2 + 𝜀
Five data files were created containing only a specific category of respondents in each. They include:





All UW-W master’s degree holders
UW-W business master’s degree holders
UW-W education master’s degree holders
UW-W business graduates with only a bachelor’s degree
UW-W education graduates with only a bachelor’s degree
The earnings of UW-W business master’s degree holders were compared with business graduates
with only a bachelor’s degree. Education master’s degree holders were compared with education
graduates with only a bachelor’s degree. However, the entire group of Whitewater master’s degree
holders was compared with nationwide data regarding the earnings of bachelor’s degree holders by age
in order to measure the effect of a UW-W graduate degree in general. Comparing Whitewater’s
master’s degree holder’s earnings with the earnings of the general population’s bachelor’s degree
holders offers a better glimpse at the actual effect that UW-W’s master’s degree has. The earnings of a
UW-W business master’s degree were compared a second time, but with the earnings of the general
7
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
population since many business graduate students have undergraduate degrees from a variety of
disciplines.
The information on bachelor’s degrees at the national level was obtained by the Current
Population Survey. It gave a limited view of earnings by age and education. An OLS regression was run
to smooth out the line resembling the following:
𝑖𝑛𝑐𝑜𝑚𝑒 = 𝛽0 + 𝛽1 𝑎𝑔𝑒 + 𝛽2 𝑎𝑔𝑒 2 + 𝛽3 𝑏𝑎𝑐ℎ𝑒𝑙𝑜𝑟 + 𝛽4 𝑚𝑎𝑠𝑡𝑒𝑟 + 𝛽5 𝑏𝑎𝑐ℎ𝑌𝑒𝑎𝑟𝑠 + 𝛽6 𝑏𝑎𝑐ℎ𝑌𝑒𝑎𝑟𝑠 2
+ 𝛽7 𝑚𝑎𝑠𝑡𝑌𝑒𝑎𝑟𝑠 + 𝛽8 𝑚𝑎𝑠𝑡𝑌𝑒𝑎𝑟𝑠 2 + 𝜀
The degree types in the regression equation are also multiplied by years (and years squared) in order to
capture the effect that the degree has on earnings over time.
The differences in earnings between bachelor and master level workers were determined, and
when combined with information regarding investment in a master’s degree, a “break-even” point was
calculated. For instance, one would ask, “if the initial investment in an education is $50,000, how long
might it take for a graduate’s enhanced earnings to total the amount that was originally invested?” Or,
“at what point do the benefits of an education begin to outweigh the costs?”
Next, an interest rate is calculated to help compare an educational investment to other available
investments. With the break-even point determined in years (the point at which the initial investment is
doubled), a continuously compounded interest rate can be determined with the following formula:
ln 2
.
𝑦𝑒𝑎𝑟𝑠 𝑡𝑜 𝑏𝑟𝑒𝑎𝑘−𝑒𝑣𝑒𝑛
A second continuously compounded interest rate was calculated to capture the
value of an educational investment beyond the break-even point to age 65.
The Big Picture: Master’s Degrees at UW-Whitewater
Earnings of workers with any master’s degree from UW-Whitewater are compared with the
earnings of bachelor’s degree holders on a national level. We attempt to measure the current income
level of graduates with any master’s degree by age. This accounts for variables likely to impact one’s
earnings, particularly experience.
Estimating the Income Stream
The income for a UW-Whitewater master’s degree holder can be estimated for any particular
age using the following equation resulting from an OLS regression:
𝑖𝑛𝑐𝑜𝑚𝑒 = $46,224.54 + $3,278.91𝑎𝑔𝑒𝑂𝑣𝑒𝑟24 − $50.41𝑎𝑔𝑒𝑂𝑣𝑒𝑟242
We estimate income starting at age 24 because it is the age where the bulk of meaningful
income data begins. As we move towards earnings estimates for more specific programs, the base age
for each equation changes, reflecting trends in earning a master’s degree at different points in a career
depending on industry. It is important to note that this equation does not necessarily accurately predict
the earnings of one individual as he or she ages. Rather, it estimates the earnings of many graduates of
8
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
many different ages during a snapshot in time in 2010. For example, 24 year-old UW-W master’s degree
holders made roughly $46 thousand in 2010. In addition, 30 year-old graduates earned roughly $64
thousand and 40 year-old graduates earned roughly $86 thousand. We use this method to construct a
rough picture of what a graduate’s earnings look like throughout his or her lifetime. The ideal and more
accurate method is to track the earnings of individual graduates throughout their lifetimes—a lengthy
and expensive endeavor.
Since we are examining the enhanced earnings for all master’s degree graduates in general, the
most appropriate population to compare them is bachelor’s degree holders in general, on the national
level. A member of this population’s income can be estimated using the following equation:
𝑖𝑛𝑐𝑜𝑚𝑒 = $28,055.50 + $373.45𝑎𝑔𝑒𝑂𝑣𝑒𝑟18 − $2.10𝑎𝑔𝑒𝑂𝑣𝑒𝑟182 + $2,745𝑏𝑎𝑐ℎ𝑌𝑒𝑎𝑟𝑠
− $48.08𝑏𝑎𝑐ℎ𝑌𝑒𝑎𝑟𝑠 2
The rough income streams from both groups are best compared graphically, as shown in the
figure below:
Nationwide Bachelor vs. UW-W Master Income
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64
Nationwide Bachelor
UW-W Master
The enhanced earnings associated with a master’s degree from UW-Whitewater (as indicated by
the gap between the purple and blue lines) clearly increases over time. For instance, at age 30, a UW-W
master’s degree holder earns $5,934 more per year than a worker with only a bachelor’s degree. At age
40, this gap has increased to $11,382, and continues to grow through $16,324 at age 50. Over a
graduate’s entire career, more than $535,708 in enhanced earnings are seen, an average of $13,066 per
year.
9
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
To show the value in a graduate education at UW-Whitewater, we must compare the benefits of
a degree (as shown above) with the costs. A simplified model of the cost of a degree is made up of two
components: tuition and expenses and the income given up to pursue the degree. The cost of an
education varies wildly from person to person, depending on a number of factors related to these two
components. A student may not see any tuition costs due to scholarships or sponsorship by an
employer. Many students choose to work while pursuing a degree, thus minimizing forgone income,
while other students choose to devote their full time to studies. For the purposes of this report and for
the sake of simplicity, we will consider only situations where a student fully pays tuition. We will also
examine two situations regarding forgone income: cases where students choose to work during school
and cases where students choose not to work.
To calculate the amount of income a student forgoes when choosing not to work while in
school, we examine what the student likely would have made in the workforce with only a bachelor’s
degree. This number is derived from the data on general bachelor’s degree holders on the national
level. For a general master’s degree, we assume that a total of two years’ worth of income has been
given up.
Scenario 1: Master’s Student Chooses Not to Work (Forgone Income)
Assuming a student chooses not to work full time while pursuing a master’s degree, the
quantifiable opportunity cost associated with his or her degree totals $94,992. This figure is a
combination of $15,664 paid in tuition and nearly $80 thousand in estimated forgone income. The
enhanced earnings associated with a UW-Whitewater master’s degree reach $94,992 after exactly 14.73
years of work. In order for an investment to double over 14.73 years, a continuously compounded
interest rate of 4.71% is required.
Over the course of a graduate’s career, he or she will see a total of $535,709 in enhanced
earnings, assuming the age at graduation is 24. For an investment of $94,992, this translates to an
interest rate of 4.22% to age 65.
Scenario 2: Master’s Student Chooses to Work (No Forgone Income)
Assuming a student chooses to work full time while pursuing a master’s degree, the only
quantifiable opportunity cost associated with his or her degree is tuition, totaling $15,664. The
enhanced earnings associated with a UW-Whitewater master’s degree reach $15,664 after exactly 4.59
years of work. In order for an investment to double over 4.59 years, a continuously compounded
interest rate of 15.21% is required.
Over the course of a graduate’s career, he or she will see a total of $535,709 in enhanced earnings,
assuming the age at graduation is 24. For an investment of $15,664, this translates to an interest rate of
8.62% to age 65.
10
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
The Business Master’s Degree
The value of a business master’s degree specifically is very similar to calculating the value of
Whitewater’s master’s degrees in general. Only the two populations being compared are changed.
Earnings of workers with a business master’s degree from UW-Whitewater are compared with the
earnings of UW-W business bachelor’s degree holders. This apples-to-apples comparison shows the
benefit of pursuing a business master’s degree having already earned a business bachelor’s degree. A
second comparison will be conducted comparing business master’s degree earners with the national
population of bachelor’s degree earners, showing the benefit of obtaining a Whitewater business
master’s degree having already graduated with a non-business bachelor’s degree. The starting age for
the estimation of earnings of a business master’s graduate is 26, as it is age where the bulk of
meaningful observations begin.
Estimating the Income Stream
The income stream for a UW-Whitewater business master’s degree holder can be calculated
using the following equation:
𝑖𝑛𝑐𝑜𝑚𝑒 = $59,358.56 + $3,153.66𝑎𝑔𝑒𝑂𝑣𝑒𝑟26 − $43.33𝑎𝑔𝑒𝑂𝑣𝑒𝑟262
The income stream from a business bachelor’s degree holder at UW-Whitewater, the group to
whom education graduate degree earnings are being compared with, can be calculated using the
following equation:
𝑖𝑛𝑐𝑜𝑚𝑒 = $40,524 + $3,527.66𝑎𝑔𝑒𝑂𝑣𝑒𝑟222 − $46.03𝑎𝑔𝑒𝑂𝑣𝑒𝑟222
The enhanced earnings associated with a business master’s degree from UW-Whitewater
increases over time. For instance, at age 30, a UW-W business master’s degree holder earns $5,480
more per year than a worker with only an business bachelor’s degree. At age 40, this gap has increased
to $5,910, and continues to grow through $6,881 at age 50. Over a graduate’s entire career, more than
$260,161 in enhanced earnings will be seen, with an average of $6,671 per year. This is best illustrated
in the chart below:
11
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Business Bachelor vs. Business Master
140,000.00
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64
Business Bachelor
Business Master
Like the Whitewater master’s degree in general, the value of a business master’s degree is
calculated under two scenarios: with and without forgone income. It is important to note that many
business master’s students have some level of corporate sponsorship of their tuition, which isn’t
accounted for in this analysis. Furthermore, it is quite common to work while pursuing a degree such as
the MBA, where work experience often translates in to an enhanced classroom experience.
Scenario 1: Business Student Chooses Not to Work (Forgone Income)
Assuming a student chooses not to work full time while pursuing a business master’s degree,
the quantifiable opportunity cost associated with his or her degree totals $114,811. This figure is made
up of a combination of tuition paid ($16,722) and income forgone ($98,089). Note that the amount of
income forgone is considerably higher in the situation of a student who already holds a business
master’s degree, as that population tends to earn more relative to other degrees. The enhanced
earnings associated with a UW-Whitewater business master’s degree reach $114,811 after exactly 19.99
years of work. In order for an investment to double over 19.99 years, a continuously compounded
interest rate of 3.47% is required.
Over the course of a graduate’s career, he or she will see a total of $260,161 in enhanced
earnings, assuming the age at graduation is 26. For an investment of $114,811, this translates to an
interest rate of 2.10% to age 65.
Scenario 2: Business Student Chooses to Work (No Forgone Income)
12
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Assuming a student chooses to work full time while pursuing a business master’s degree, the
only quantifiable opportunity cost associated with his or her degree is tuition, totaling $16,722. The
enhanced earnings associated with a UW-Whitewater master’s degree reach $16,722 after exactly 2.90
years of work. In order for an investment to double over 2.90 years, a continuously compounded
interest rate of 23.89% is required.
Over the course of a graduate’s career, he or she will see a total of $260,161 in enhanced earnings,
assuming the age at graduation is 26. For an investment of $16,722, this translates to an interest rate of
7.04% to age 65.
Another Likely Scenario for the Business Master’s Student
Many business graduate students hold non-business undergraduate degrees ranging from a
number of different disciplines. The pool of workers with business bachelor’s degrees earns more than
the pool of workers who have degrees from every discipline. Thus, the enhanced earnings associated
with receiving a business master’s degree for a student coming from another discipline are greater than
a student who has both degrees in business.
In a situation where a student from another discipline chooses to pursue a business master’s
degree and chooses not to work while in graduate school, a $107,006 investment is made in both tuition
and forgone income. This student will see a break-even point of 8.71 years, and experience an interest
rate of 7.95% until this point. Over the course of his or her career, a total of $985,955 in enhanced
earnings will be seen, assuming a graduation age of 26. For an investment of $107,006, this translates
to an interest rate of 5.69% to age 65.
If the same student chooses to work through school, a $16,772 investment is made in tuition.
This student will see a break-even point of 1.57 years, and experience an interest rate of 43.96% until
this point. Over the course of his or her career, a total of $985,955 in enhanced earnings will be seen,
assuming a graduation age of 26. For an investment of $16,772, this translates to an interest rate of
10.45% to age 65.
The Education Master’s Degree
Teachers are commonly sponsored by their employer and tend to work throughout their time in
school. In situations such as this, where tuition and forgone income are commonly zero, the interest
rate associated with the value of an education master’s degree, no matter the enhanced earnings,
skyrockets to infinity. It is important to note that tuition and forgone income are not the only factors in
the cost of an education – only the most quantifiable. Endless hours of time and energy, as well as
personal sacrifices, add to the ultimate cost of a degree. In order to properly analyze the education
master’s degree and produce an interest rate for comparison with other advanced degrees at UWWhitewater, we will compare the degree in largely the same way as all graduate degrees in general and
the business degree.
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Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Earnings of workers with an education master’s degree from UW-Whitewater are compared
with the earnings of UW-W business bachelor’s degree holders. The starting age for the earnings of an
education master’s graduate is 28, as it is the age where a meaningful number of observations begin.
Estimating the Income Stream
The income stream for a UW-Whitewater education master’s degree holder can be estimated using the
following equation:
𝑖𝑛𝑐𝑜𝑚𝑒 = $44,521.18 + $1,918.61𝑎𝑔𝑒𝑂𝑣𝑒𝑟28 − $14.72𝑎𝑔𝑒𝑂𝑣𝑒𝑟282
The income stream from an education bachelor’s degree holder at UW-Whitewater, the group to whom
business graduate degree earnings are being compared with, can be calculated using the following
equation:
𝑖𝑛𝑐𝑜𝑚𝑒 = $33,849.03 + $1,951.32𝑎𝑔𝑒𝑂𝑣𝑒𝑟242 − $41.27𝑎𝑔𝑒𝑂𝑣𝑒𝑟242
The enhanced earnings associated with a business master’s degree from UW-Whitewater increases over
time. For instance, at age 30, a UW-W business master’s degree holder earns $2,983 more per year
than a worker with only a business bachelor’s degree. At age 40, this gap has increased to $6,673, and
continues to grow through $9,674 at age 50. Over a graduate’s entire career, more than $357,520 in
enhanced earnings will be seen, with an average of $9,622 per year. This is best illustrated in the
following chart:
Education Bachelor vs. Education Master
80000
70000
60000
50000
40000
30000
20000
10000
0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Education Bachelor
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Education Master
Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Note that at a certain point in time, the enhanced earnings for an education master’s degree
graduate increase dramatically. Since obtaining an education master’s degree for a teacher is very
common, those who never opt to pursue one are generally left behind in terms of income. A master’s
degree in education is generally required to maintain an income that increases at a healthy rate over
one’s career.
Scenario 1: Education Student Chooses to Not to Work (Forgone Income)
Assuming a student chooses not to work full time while pursuing an education master’s degree,
the quantifiable opportunity cost associated with his or her degree totals $92,672. The enhanced
earnings associated with a UW-Whitewater education master’s degree reach $92,672 after exactly 21.79
years of work. In order for an investment to double 21.79 years, a continuously compounded interest
rate of 3.18% is required.
Over the course of a graduate’s career, he or she will see a total of $357,521 in enhanced
earnings, assuming the age at graduation is 28. For an investment of $92,672, this translates to an
interest rate of 3.64% to age 65.
Scenario 2: Education Student Chooses to Work (No Forgone Income)
Assuming a student chooses to work full time while pursuing a master’s degree, the only
quantifiable opportunity cost associated with his or her degree is tuition, totaling $15,664. The
enhanced earnings associated with a UW-Whitewater master’s degree reach $15,664 after exactly 5.18
years of work. In order for an investment to double over 5.18 years, a continuously compounded
interest rate of 13.38% is required.
Over the course of a graduate’s career, he or she will see a total of $357,521 in enhanced
earnings, assuming the age at graduation is 28. For an investment of $15,664, this translates to an
interest rate of 8.45% to age 65.
Benefits to the State of Wisconsin
It is often argued that investments by the government, in a fashion similar to the private sector,
should have some basis in cost / benefit analysis. While ignoring some of the social benefits of
education, this issue is confronted by reviewing the economic performance of graduates of the
University of Wisconsin – Whitewater (UW-W). This report develops a model to quantify the economic
value of a graduate degree earned at UW-W. This economic value is determined to be the incremental
income tax revenue generated from students who graduated from UW-W. The state assists the
educational process by investing in UW-Whitewater; it funds a portion of the university’s operations. In
return for this investment, the state has a more educated workforce who receives higher wages. These
workers pay higher taxes, thus returning this initial investment over time.
Increased Tax Revenue
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Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Increases in state tax revenue depend on the student living within the state after graduation.
Data on increased tax revenues can be broken down by degree type and given in yearly and lifetime
benefits:
Degree Type
General
Business (vs Bus.)
Business (vs CPS)
Education
Yearly
Enhanced
Earnings
$13,066
$6,671
$25,281
$9,663
Yearly
Enhanced
Tax Revenue
$849
$434
$1,643
$628
Lifetime
Enhanced
Earnings
$535,709
$260,161
$985,955
$357,521
Lifetime
Enhanced Tax
Revenue
$34,821
$16,910
$64,087
$23,239
*Assuming a tax rate of 6.5%
Since 1974, 11,680 students have graduated with a master’s degree of some kind from the
University of Wisconsin – Whitewater. Considering all master’s degrees in general, this could ultimately
lead to $406,709,280 in additional state revenue (in real terms) over the lifetime of these graduates,
depending on how many choose to remain in the state of Wisconsin after graduation. In fact, if all of
these graduates have remained in the state, they’ve already contributed an estimated additional $171.6
million in additional state revenues as a result of their advanced degrees.
Of course, not all graduates choose to remain in the state. However, even if only 75% chose to
remain, they’ll contribute over $305 million in their lifetimes and have already contributed nearly $128
million in additional state tax revenue as a result of their advanced degrees.
A Healthier Economy
A less obvious benefit to the state of Wisconsin is the increased level of spending these
graduates will engage in throughout their lives. A higher level of income translates to higher levels of
spending in the state economy. Higher levels of spending ultimately translate to more jobs. In fact,
employees working in jobs created by the increased spending of advanced degree holders will spend
money they would not have otherwise earned, creating even more jobs. This domino effect is similar to
those seen in input-output models used in various economic impact studies.
Conclusion
Investment in an education yields high returns, particularly if a student is able to work full-time
while earning a degree. Without working full time, rates of return for a UW-Whitewater master’s
degree range from 3.18-4.71%. Since forgone income is the number one component of the opportunity
cost of a college degree, when students are able to work, the return on the educational investment rises
dramatically to 13.38-23.89%. This lower cost produces an even more attractive degree. However, in
times of high unemployment, the choice of attending graduate school fulltime may produce higher
returns than projected since foregone income anticipates that a job is readily available. As a result,
attending graduate school full time during economic downturns can produce dramatic economic
returns.
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Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
Opportunity cost isn’t just limited to tuition and forgone income. Students may need to
temporarily sacrifice aspects of their personal lives in order to obtain a degree. These costs are
extremely difficult to quantify. There is also the stress associated with a challenging graduate program.
This stress, combined with time lost with spouses and children, cannot be ignored.
Similar to how all opportunity costs cannot be quantified, all benefits of a master’s degree
similarly cannot be quantified. As with all levels of education, a graduate education produces citizens
with a deeper understanding of the world, a sense of personal achievement, and a greater level of
personal efficacy. While this study aims to look at the hard figures surrounding the decision to earn a
degree, there remain countless human factors that cannot be accounted for, as well as the positive
externalities that an educated populace brings to society.
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Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
References
David Card; Department of Economics, University of California at Berkeley
The Causal Effect of Education on Earnings
http://emlab.berkeley.edu/~card/papers/causal_educ_earnings.pdf
Robert D. Beam; University of Wisconsin – Superior
Economic Impact Study: UW-Superior and the Local Economy
U.S. Census Bureau
The Big Payoff
http://www.census.gov/prod/2002pubs/p23-210.pdf
U.S. Census Bureau
Current Population Survey
http://www.census.gov/cps/
UW-Whitewater Fiscal & Economic Research Center
2010 Alumni Survey
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Enhanced Earnings of a UW-Whitewater Graduate Degree
A Synthetic Analysis
uww.edu/ferc
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