Feb 20, 2011

Values of Different Degrees

As I said in my last post, I would put up some details about how much various types of degrees were worth, according to Canadian census data - as I said in the last post, this type of data should be fairly similar across countries that have similar economies as Canada, like the US, UK, or Australia. I'll make my code available so that if you want to test against your own country, you shouldn't have too much trouble.

Let's take a look at what we have. Here is a ranking of the types of degrees based on a 95% confidence interval of median 2006 incomes (all the values are inflation-adjusted to 2010 Canadian dollars):

1) Engineering: $54.4k - $58.4k
2) Commerce: $51.1k - $55.2k
3) Sciences: $49.8k - $54.3k
4) Education: $47.4k - $48.6k
Median income for university graduates: $45.3k - $47.5k
5) Social Sciences: $43.2k - $46.2k
6) Health/Food Sciences: $38.5k - $42.3k
7) Humanities: $35.0k - $37.4k
8) Fine Arts: $24.5k - $28.4k
Median income for non-university gradates: $25.5k - $25.8k

So it looks like engineers are on top, although their confidence interval has some overlap with commerce graduates which means that if we want to be 95% sure we are right, we can't say that engineers make more than commerce grads. If we reduce our confidence in our results, the data says that once you get down to about 80% confidence you can say that engineers make more than commerce grads. In other words, given our data here, there's a roughly 80% chance that engineers make more.

In the last post I also looked at the data from 1986. Let's see how the rankings change over time:

1) Engineering: $67.4k - $70.8k
2) Sciences: $53.1k - $56.4
3) Commerce: $51.7k - $54.7k
4) Education: $49.0k - $51.0k
Median income for university graduates: $47.9k - $48.9k
5) Social Sciences: $42.7k - $44.8k
6) Humanities: $38.6k - $40.7k
7) Health/Food Sciences: $35.3k - $38.7k
8) Fine Arts: $23.9k - $28.6k
Median income for non-university graduates: $23.0k - $23.2k

The most striking difference between these results and the ones from 2006 is the drop in wages for engineers. They used to be, by far, the most well-paid university degrees, whereas now they are only slightly higher than commerce degrees (which haven't changed all that much). This is somewhat disappointing for up-and-coming engineers (well, necessarily)!

The rest of the degrees haven't changed too much. A couple of them have statistically significant changes (such as education), but for the rest we can't really distinguish any change here from statistical noise - at least not at a 95% confidence level, if we accept a higher probability of being wrong then we can say things have changed.

This analysis here focuses on the median. Why do I do that? Why not use the average/mean? This is because incomes are something that are very skewed, meaning that that the average will be influenced a lot by the outliers that make tons of cash, making it look like a certain degree may be worth a lot when in fact most of the people with that degree are making a lot less than the average. The difference is most pronounced with commerce degrees: in 2006 the average income for a commerce degree holder is around $78k, which is the highest average for all the degree types. However the median is roughly $53k, showing that there is a massive amount of skewness in the distribution of commerce grads: those MBAs that are making big 6-figure salaries are pulling up the average. To get a feel for how most people with a certain degree are doing it is better to look at the median, which is much less likely to be affected by huge outliers than the mean is.

Again I'll repeat that these are correlations, not causations. In fact since the variance of the incomes for all of the degree types have increased dramatically, that could indicate that your degree is less important in determining your salary today than it was 25 years ago. In order to isolate the actual effect of the degree on wage you'd have to have a more sophisticated model that takes into account all sorts of other relevant factors like age, experience, ability, etc.

As always, the code is available here and the results of running the code are here.

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