Foundations of Economics, Anderson University DBA
Summer 2001
Analysis of Educational Attainment’s
Effect on Corporate Profitability
KARL R. KNAPP
Anderson University – Anderson IN
ABSTRACT
This paper analyzes the statistical correlation between the educational attainment of the U.S. population and
profitability of U.S. corporations. The basic hypothesis being tested is that the increase in percentage of college educated
Americans has had a direct effect on profitability of American corporations.
Hypothesis
A
better-educated
workforce
directly benefits corporations through
corresponding increases in profitability.
This is the basic premise being explored.
While the missions of corporations
are often stated in non-materialistic terms,
the reality of the situation is that
corporations must generate normal profits
to stay in business. Corporations strive in
the marketplace for opportunities to
exceed normal profit and experience real
economic profit. For this reason corporate
profitability can be used to illustrate the
overall performance of corporations. This
profit goal is the dependent variable in this
study.
Profit can be derived in many ways.
The education of corporate employees is
usually a key ingredient to success. While
there are certainly other societal
motivations for education, corporations
are major stakeholders in American
education.
 2001by Karl R. Knapp
Over the past one hundred years
universities have become increasingly
utilitarian in their curriculum. University
education has moved from being based on
a classical (liberal) foundation dedicated to
the creation of an educated clergy, to a
curriculum based on science dedicated
more to serving utilitarian business needs.
This transition in the curriculum should
have affected American business.
In addition to changes in college
curriculum, there has been an increasing
trend in the percent of the U.S. population
receiving a college education. This should
have also affected American business.
Initial Regression Analysis
In order to analyze the effect of
education on corporate profitability two
regression analyses were completed.
The first regression analysis
explored the effect of the U.S.
population’s educational attainment to
corporate profitability. In this first analysis
the following variables were used:
Page 1 of 4
0812/2001
Foundations of Economics, Anderson University DBA
Summer 2001
 Independent Variable: Corporate
Profits per Labor Force Member
 Dependent
Variable:
%
of
Population Completing 4 or More
Years of College
The independent variable was
calculated on a per-labor-force-member
basis to account for the growth in
corporate profits attributable to the
growth of the domestic market (civilian
labor force).
Results of this initial regression
analysis showed a strong correlation
between the dependent variable and the
independent variable.
 Adjusted R2
 T-Stat of Independent Variable
 T-Stat of the Intercept
84.7
14.7
12.9
The final regression analysis built
upon the initial regression by adjusting for
the effect of inflation on corporate
profitability. The consumer price index
(CPI) was used to adjust corporate profits
to a ‘real’ basis. In the final regression
analysis, the following variables were used:
 Independent Variable: InflationAdjusted Corporate Profits per Labor
Force Member
 Dependent
Variable:
%
of
Population Completing 4 or More
Years of College
Results of this final regression
analysis showed virtually no correlation
between the dependent variable and the
independent variable.
Educational Impact on Corporate Profits Per Labor Force Member
$25,000
Corporate Profits per Labor Force Member
Final Regression Analysis
The consumer price index (CPI)
was used to adjust corporate profit.
$30,000
y = 1049.5x - 7125.6
R2 = 0.8508
$20,000
likely means that the equation is missing
explanatory variables.
 Adjusted R2
 T-Stat of Independent Variable
 T-Stat of the Intercept
$15,000
$10,000
$5,000
-0.02
-0.28
3.27
$0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Educational Impact on Real Corporate Profits Per Labor Force Member
% of Population with 4 Years of College or More
$5,000
 2001by Karl R. Knapp
$4,500
$4,000
Real Corporate Profits per Labor Force Member
In this initial regression the
hypothesis proved to be significant by
explaining 84.7% of the variation in the
dependent variable. The T-Stat of the
dependent
variable
was
certainly
significant at 14.7 (above 2.0). The main
weakness in this initial regression was that
the T-Stat of the Intercept was also
strongly significant at 12.9. This most
$3,500
y = -4.6697x + 3440.3
2
R = 0.002
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
% of Population with 4 Years of College or More
The hypothesis proved to be
insignificant. When adjusting for inflation,
Page 2 of 4
0812/2001
Foundations of Economics, Anderson University DBA
Summer 2001
the increased educational attainment of
the U.S. population shows almost no
effect on real corporate profitability per
labor force member.
Conclusion
In conclusion the educational
attainment of the U.S. population be used
to explain changes in corporate
profitability. The initial regression analysis
performed showed that several other
variables missing from the equation
explain the changes in corporate
profitability. While educational attainment
may indeed be significant in the context of
a more comprehensive formula, when
taken alone it cannot be said to explain the
variances in corporate profitability.
 2001by Karl R. Knapp
Data Sources
U.S. Census Bureau. (2001). Educational
attainment, completed 4 years of college or more, % of
total population, not seasonally adjusted. Statistical
Abstract of the U.S.
U.S. Department of Commerce, Bureau of
Economic Analysis (2001). Corporate profits with
inventory valuation adjustment (IVA) & capital
consumption adjustment (CCAdj), billions of dollars,
seasonally adjusted annual rate.
U.S. Department of Labor, Bureau of Labor
Statistics (2001). Civilian labor force, thousands,
seasonally adjusted.
U.S. Department of Labor, Bureau of Labor
Statistics (2001). Consumer price index for all
urban consumers (CPI), all items, 1982-1984=100,
not seasonally adjusted.
Page 3 of 4
0812/2001
Foundations of Economics, Anderson University DBA
Year
Civilian Labor
Force Consumer
(Thousands) Price Index
Summer 2001
Corporate
Profits
(Billions)
Inflation
Adjusted
Corporate
Profits
(Billions)
% of Total
Population
Corporate Inflation Adjusted
Completed 4
Profits per Corporate Profits
Years of College Civilian Labor per Civilian Labor
or More Force Member
Force Member
1960
70,395
29.8
209.4
209.4
7.7
$2,975
$2,975
1961
70,077
30.0
213.9
212.5
8.0
$3,052
$3,032
1962
70,854
30.4
246.2
241.3
8.4
$3,475
$3,406
1963
72,188
30.9
270.6
261.0
8.7
$3,749
$3,615
1964
73,465
31.2
299.4
286.0
9.1
$4,075
$3,893
1965
75,093
31.8
343.8
322.2
9.4
$4,578
$4,290
1966
76,641
32.9
367.8
333.1
9.7
$4,799
$4,347
1967
78,491
33.9
358.4
315.1
9.9
$4,566
$4,014
1968
79,463
35.5
386.1
324.1
10.2
$4,859
$4,079
1969
81,624
37.7
374.9
296.3
10.4
$4,593
$3,631
1970
83,670
39.8
326.6
244.5
10.7
$3,903
$2,923
1971
85,625
41.1
380.6
276.0
11.3
$4,445
$3,223
1972
87,943
42.5
439.0
307.8
12.0
$4,992
$3,500
1973
90,890
46.2
495.8
319.8
12.6
$5,455
$3,519
1974
92,780
51.9
457.8
262.9
13.3
$4,934
$2,833
1975
94,409
55.5
532.1
285.7
13.9
$5,636
$3,026
1976
97,348
58.2
642.2
328.8
14.4
$6,597
$3,378
1977
100,491
62.1
763.8
366.5
14.8
$7,601
$3,647
1978
103,809
67.7
868.8
382.4
15.3
$8,369
$3,684
1979
106,258
76.7
890.1
345.8
15.7
$8,377
$3,255
1980
107,352
86.3
793.9
274.1
16.2
$7,395
$2,554
1981
108,912
94.0
875.8
277.6
16.8
$8,041
$2,549
1982
111,083
97.6
805.0
245.8
17.5
$7,247
$2,213
1983
112,327
101.3
1016.5
299.0
18.1
$9,049
$2,662
1984
114,581
105.3
1239.0
350.6
18.8
$10,813
$3,060
1985
116,354
109.3
1289.8
351.7
19.4
$11,085
$3,022
1986
118,611
110.5
1202.9
324.4
19.8
$10,142
$2,735
1987
120,729
115.4
1386.5
358.0
20.2
$11,484
$2,966
1988
122,622
120.5
1620.2
400.7
20.5
$13,213
$3,268
1989
124,497
126.1
1582.7
374.0
20.9
$12,713
$3,004
1990
126,142
133.8
1634.3
364.0
21.3
$12,956
$2,886
1991
126,664
137.9
1724.9
372.7
21.4
$13,618
$2,943
1992
128,554
141.9
1812.3
380.6
21.4
$14,098
$2,961
1993
129,941
145.8
2042.1
417.4
21.9
$15,716
$3,212
1994
131,951
149.7
2292.8
456.4
22.2
$17,376
$3,459
1995
132,511
153.5
2675.0
519.3
23.0
$20,187
$3,919
1996
135,113
158.6
3016.1
566.7
23.6
$22,323
$4,194
1997
137,153
161.3
3335.1
616.2
23.9
$24,317
$4,492
1998
138,613
163.9
3109.7
565.4
24.4
$22,434
$4,079
1999
140,185
168.3
3300.6
584.4
25.2
$23,545
$4,169
 2001by Karl R. Knapp
Page 4 of 4
0812/2001