72 Appendix 7: Value per credit and the Mincer function Appendices We map each of these CHEs to the education ladder depending on the students’ education level and the average number of CHEs they completed during the year. For example, associate degree graduates are allocated to the stage between the certificate degree and the associate degree, and the average number of CHEs they completed informs the shape of the distribution curve used to spread out their total CHE production within that stage of the progression. The sum product of the CHEs earned at each step within the education ladder and their corresponding value yields the students’ aggregate annual increase in income (∆E), as shown in the following equation: and n is the number of steps in the education ladder, ei is the marginal earnings gain at step i, and hi is the number of CHEs completed at step i. Table A7.1 displays the result for the students’ aggregate annual increase in income (∆E), a total of $2.6 million. By dividing this value by the students’ total production of 8,863 CHEs during the analysis year, we derive an overall value of $295 per credit. Mincer function The $295 value per CHE in Table A7.1 only tells part of the story, however. Human capital theory holds that earnings levels do not remain constant; rather, they start relatively low and gradually increase as the worker gains more experience. Research also shows that the earnings increment between educated and non-educated workers grows through time. These basic patterns in earnings over time were originally identified by Jacob Mincer, who viewed the lifecycle earnings distribution as a function with the key elements being earnings, years of education, and work experience, with age serving as a proxy for experience.50 While some have criticized Mincer’s earnings function, it is still upheld in recent data and has served as the foundation for a variety of research pertaining to labor economics. Those critical of the Mincer function point to several unobserved factors such as ability, socioeconomic status, and family background that also help explain higher earnings. Failure to account for these factors results in what is known as an “ability bias.” Research by Card (1999 and 2001) suggests that the benefits estimated using Mincer’s function are biased upwards by 10% or less. As 50 See Mincer (1958 and 1974). Table A7.1: Aggregate annual increase in income of students and value per CHE Aggregate annual increase in income $2,615,120 Total credit hour equivalents (CHEs) in FY 2021-22 8,863 Value per CHE $295 Source: Lightcast impact model
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