Teaching/Communication/Extension/Profession,

Osburn, Donald D.

Richardson, W.B., Jr.

English

Research Papers in Economics

SOUTHERN  JOURNAL OF AGRICULTURAL  ECONOMICS  JULY,  1973
AN INVESTMENT  ANALYSIS  OF VOCATIONAL  PROGRAMS
OFFERED  IN MISSOURI  JUNIOR COLLEGES*
Donald  D.  Osburn and W.B.  Richardson, Jr.
Administrators  of  the  public  junior  colleges  in  justify  specific  expenditures  among  the  educational
Missouri  are  faced  with two  major  problems.  First,  alternatives.
there  is  an  increasing  number of students demanding
OBJECTIVES post-secondary  education.  Second,  apathy  of voters
and  legislators  toward  financial  support  of  our  The  evaluation  model  designed  for  use  in  this
educational institutions  is increasing.  A study entitled  study is  aimed at  determining the relative  desirability
Missouri Public Junior Colleges:  A  Report  to  the  of educational  programs  based on costs and benefits
People  [3]  revealed  that  in  1960  there  were  of those programs.  The major thrust of the study was
approximately  600,000 students  enrolled  in two-year  centered  on  cost-benefit  analyses  of the  vocational
institutions of higher education  in the  United States.  programs  in Missouri public junior colleges.
The  report  further  stated  that  in  1971  the  COSTS
enrollments  would  climb  to  2,000,000  and  that  by
1980  the  projected  enrollments  would  approximate  Treatment of the Cost Data.
4.4  million.  This  predicted  growth  pattern  has been  A  wide  variety  of  accounting  procedures  were
observed  in  Missouri  with the  enrollments increasing  found  in the  districts studied which  necessitated  the
by approximately  20 percent  per year.  development  of a  cost  rationale  for the treatment  of
The report  cited  above  also  confirms the  second  cost  data.  Two  cost  categories  were  used:  current
major problem as state aid for Missouri junior colleges  costs  and  equipment  costs.  Current  costs  consist  of
has  been  decreasing  over  the  past  few  years.  Voter  administrative,  instructional,  operational  and
apathy,  although  more  evident  in secondary  schools,  maintenance  costs. Equipment costs consist of annual
is  a  force  that  can  affect  the  junior  college  as  depreciated  value  of equipment  outlays.  Enrollment
programs are expanded to meet the increasing student  data  for  each  school  were  converted  to  a  full-time
demand.  equivalent  (FTE)  basis  so  as  to  standardize  for
The combination  of these  two factors has placed  variances  in  part-time  students among  schools.  Costs
the  junior  college  administrator  in  a  precarious  of  each  individual  vocational  program  were
situation  of allocating scarce  resources (funds) among  summarized  as:  average  annual  current  costs per FTE
several  educational  alternatives.  Budgetary  priorities  per  vocational  program,  and  annual  average  total
require  rational  thinking based  on  sound  criteria  in  costs  per  FTE  per  vocational  program.  Estimates  of
order  to  allocate  properly  these  scarce  funds among  building  costs were  not  obtained.  Hence,  total  costs
competing  programs  to achieve  the greatest  return to  presented in Table  1 exclude costs for buildings.
society's dollar.
The  junior  college  administrator  is  hard pressed  Costs Among Programs
to  find  the appropriate  criteria for decision making as  There were  seven vocational program areas in the
he  attempts  to  allocate  financial  resources.  eight junior  college  districts that  had sufficient scope
Furthermore,  more specific data and better evaluative  to warrant  their inclusion  in this investigation.  Table
techniques  are  critically needed in decision making to  1  presents  a  summary  of  average  current  and
Donald  D. Osburn  is associate  professor agricultural  economics at the University of Missouri  and W.  B.  Richardson, Jr., is assistant
professor of agricultural  economics at Purdue  University.
*Missouri Agricultural  Experiment Station Journal Series  No.  6620.
121Table  1.  AVERAGE  ANNUAL  CURRENT  COST,  TOTAL  COST,  AND  PROGRAM  COSTS  PER STUDENT,
BY  PROGRAM  AREA,  OF OPERATING  VOCATIONAL-TECHNICAL  EDUCATION  PROGRAMS  IN
MISSOURI 1969-70  AND  1970-71
Average  Average  Two
Annual  Annual  Year
Total  Current  Total  Program
Program  Area  FTE  Cost  Cost  Costs
Agribusiness  and
Industry  112  $  983  $1007  $2014
Business and Office
Occupations  383  712  749  1498
Data  Processing  195  931  939  . 1878
Distributive Education  218  700  722  1444
Health Occupations*  214  1804  1854  2239
Public Service Related
Occupations  124  554  574  1148
Trade and Industrial
Octupations  519  841  904  1808
Weighted  Average  1765  911  950  1815
aThe  $2239  is  a  weighted  average  of  169  graduates  from  the  one  year  licensed  practical  nursing
program and 45  graduates of the two year associate  degree program.
estimated  total  cost  of  operating  curricula  within  education  programs.  Multiple  regression  techniques
each of these  seven program areas.  were  employed to control for these variables.
Estimated total  costs were  obtained by weighted  The  dependent  variable  used  in  the  regression
averages.  Within  each  program  area,  a  weighted  analysis  was  monthly  earnings  of  individuals  who
average  of available  equipment  costs  were  computed.  completed  junior  college  vocational-technical
This  weighted  average  was  used  to  compute  total  education  programs.  It  provided  one  index of labor
costs  for  those  programs  not  having  adequate  market  performance  of  these  individuals.  Table  2
equipment data.  shows  the  results  of earnings regressed  on  selected
-~~~BENEFITS  ~independent variables.
BENEFITS Estimates  of  earnings,  controlled  for  the
This  investigation  sought  to  obtain  a  net  independent  variables,  were  generated  using  the
monetary  benefit  relating  directly to post-secondary  coefficients  estimated  by the regression  equation. To
training.  Research by Kaufman  [2]  and  Carroll  and  provide  standard  comparisons,  the  following
Ihnen  [1]  revealed  that  there  are  several  variables  assumptions were  made:
that  influence  monetary  benefits  of  students  in  1.  A mean age of 24 years was used.
vocational-technical  education  programs at secondary  2.  A  mean  educational  level of the father  was
and  post-secondary  levels  (earnings  of  graduates  11  years.
minus  expected  earnings  had  they  not  attended  3.  It  was assumed that  none of the individuals
post-secondary  training  institutions).  Thus,  it  was  belong  to a labor union.
necessary  to  control,  statistically,  for  these  variables  4.  All persons were males.
that  were  thought to influence earnings of individuals  5.  All  individuals  completed  their  vocational
who  completed  junior  college  vocational  technical  training in  1970.
122Table 2.  REGRESSION  RESULTS  WHEN  MONTHLY  EARNINGS  OF  MISSOURI  JUNIOR  COLLEGE
GRADUATES  WERE  REGRESSED  ON  SELECTED  INDEPENDENT  VARIABLES,  1968-69,
1969-70  AND  1970-71
Variable  b  s  t
Program  Area
Agribusiness  -115  34  -3.42*4
Business  - 46  43  -1.08
Data Processing  - 16  45  -0.37
Distributive  Education  - 17  30  -0.57
Health Occupations  37  47  -0.79
Public Service  221  63  3.50**
Trade and Industrial #
Sex  123  63  3.28**
Father's  Education  1  2  0.49
Labor Union  61  32  1.89
Hours Worked  4  2  2.16*
Age  6  1  3.79**
Year  of  Graduation
1969  68  28  2.41^
1970  31  20  1.53
1971#
Number of observations  = 289
b = regression coefficient
s = standard  error of regression coefficient
t = computed t  value
Multiple  correlation coefficient  = .5706
Coefficient  of determination =  .3256
Intercept (A value)  = 89.57
f value =  10.21
*Significant at  the  .05 level
**Significant at the.01  level
#These  variable  subsets were  entered into the  intercept.  Therefore,  the  other subsets  in each variable  set can be
interpreted as deviations from this subset.
Table  3 summarizes the results of the application  a  week  had  estimated  monthly  earnings  of $444  or
of  the  regression  coefficients  taking the assumptions  $5328 annually.
Public  service related  occupations  with the same into  account.  The  agribusiness  program  area  had the  occupations  with the same
n ylowest  estimated  net  monthly  earnings.rv  An  assumptions  had  the  highest  estimated  net earnings.
agribusiness  graduate,  male,  24  years  of  age,  who is  Public  service  workers  estimated  net  earnings  were
not  a  member  of  a  labor  union,  whose  father  $780  per  month  or  $9360  annually.  This was  based
on  a  small  number  of programs  found  exclusively  in completed  11  years  of schooling,  who  completed  his
the  urban  areas  of the  state. Also  there  was a small vocational  training during  1970 and worked  40 hours  ' 
sample  size  in  this  subset.  Therefore,  inferences
123Table 3.  ESTIMATEDa  MONTHLY  EARNINGS  AND  UNADJUSTED  EARNINGS  BY  PROGRAM  AREA  OF
INDIVIDUALS  COMPLETING  MISSOURI  JUNIOR  COLLEGE  VOCATIONAL-TECHNICAL
EDUCATION  PROGRAMS,  1968-69,  1969-70, AND  1970-71
Program  Area  Adjusted  Earnings  Unadjusted  Earnings Program  Area
Monthly  Annual  Monthly  Annual
Agribusiness  and
Industry  $444  $5328  $434  $5208
(140)
Business and Office
Occupations  513  6156  372  4464
(107)
Data Processing  542  6504  472  5664
(128)
Distributive  Education  542  6504  484  5808
(203)
Health Occupations  596  7152  485  5820
(146)
Public Service Related
Occupations  780  9360  473  5676
(295)
Trade and Industrial
Occupations  559  6708  542  6504
(150)
Average  568  6816  466  5592
Weighted  Average  549  5688  471  5657
NOTES:  aAssuming  11  years  of  education  for  father,  24  years of age,  40  hours worked  per week,  male,  and
1970  year of completion.  The  figures  are based  on the regression results found in Table 2. Numbers in
parenthesis are the standard deviations.
concerning  this  program  area  must  be  made  with  labor  market role  discrimination  rather than program
caution.  characteristics.  Both  adjusted  and  unadjusted  means
The  raw  mean  earning  differences  among  were  used when  costs and benefits were  combined for
program  areas,  in  terms  of  cost  rankings  among  the investment analysis.
programs,  were  relatively  consistent  with the earnings  INVESTMENT ANALYSIS
difference  estimated  by  the  regression  equation
(Table 3).  An  investment  analysis  was  made  of  the  seven
Graduates  of  health  and  public  service  program  areas  being  operated  by  the  vocational
occupations,  rather  than  earning  less than trade  and  departments  in  eight  selected  Missouri  public junior
industrial  graduates,  as  indicated  by  the  raw  mean,  colleges.  Two  investment  criteria  were  selected  for
actually  earned  more  than  trade  and  industrial  use:  (1)  benefit-cost ratio, and (2) the internal rate of
graduates  when regression  results  were used to adjust  return.  The analysis  was made under three alternative
for  characteristics  of  the  graduate.  Still  another  earning  levels  of  high  school  graduates  due  to
important  difference  was  that  relative  earnings  of  problems  encountered  in  estimating  the  earnings  of
business  and  office  graduates  increased  dramatically  high school graduates during the 1970 work year. The
over unadjusted earnings  estimate.  This was likely due  three  projections  for  those  who  received  no
to  the  fact  that  93  percent  of  business  and  office  additional formal training were:
graduates  were female. Hence, one may conclude that  1.  Projection  1  -- $5,000,  2.  Projection  II  -
the  unadjusted  earnings  reflect  in  large  part  sex  or  $6,000, and 3.Projection  III -$7,000
124Table4.  INVESTMENT  ANALYSIS  PERTAINING  TO  GRADUATES  OF  VOCATIONAL  PROGRAMS
OFFERED  IN  MISSOURI  JUNIOR  COLLEGES, UNDER  ALTERNATIVE  EARNINGS  OF $5,000,
$6,000 AND $7,000 BY HIGH SCHOOL GRADUATES,  ACADEMIC YEARS  1968-69,  1969-70, AND
1970-71
Benefit-Cost  With  Benefit-Cost  With  Benefit-Cost  With
\'ocational  $5  000  Earnings  Internal  $6,000 Earnings  Internal  $7,000  Earnings  Internal
Rate of  Rate of  Rate of
Program  Discount  Discount  Discount  Discount  Discotnt  Discount  Rte  t
Return  Return  Return Rate  Rate  Rate  Rate  Rate  Rate
67%  10%  6%o  10%  6%o  10%
Agribusiness  and
Industry  2.5  1.6  17%  ----  ----  ----  --- 
Business  and  Office  12.2  7.9  *  1.65  1.07  .117.  -
Data  Processing  and
Computer  Science  12.2  7.9  *  4.07  2.65  27%  ---  -- 
Distributive
Education  15.9  10.3  5.31  3.5  35%  ---  -- 
Health  Occupations  8.97  4.8  4.8  3.1  30%  1.07  .70  6%
Public  Service
Occupations  57.4  38.5  *  44.7  29.7  *  32.0  20.8
Trade  and
Industrial  15.3  9.7  *  6.3  3.5  42%  ---  -- 
*Greater than 50 percent
a  Benefit-cost ratios less than 1.
Graduates  were expected  to work until an age of  evaluation  with  current  and  equipment  costs
65.  Hence,  benefits  were  assumed  to  accrue  for  a  considered  in  the  investment  analysis.  The  cost
period of  41  years.  Benefits (graduate earnings minus  analysis  was  later  expanded  to  capital  outlay  and
earnings  of  students  who  received  no  formal  student  foregone  earnings.  Cost  data  regarding
post-secondary  training)  were  assumed  to  remain  physical  plants  and  associated  capital  outlay,  with
constant over the working  life of the graduates.  few  exceptions,  were  not  available.  As  a  proxy  for
Two  discount  rates  were  utilized  to  determine  and  to  provide  the  basis  for  an estimate  of capital
the  present  value  of  future  earnings  differences  of  outlays, the  findings  of Osburn and  Goishi  [4]  that
junior  college  students  over  students  who  did  not  annual  capital  outlays  per  student  for  vocational
attend  post-secondary training  institutions.  Also, the  training  in  area  schools  were  on the  order  of about
investment  analysis  results  of  Table  4  were  those  $100  were  used.  Therefore,  capital  outlays  of $200
obtained by using  the total current  costs presented in  per  student  could  be  expected  for  a  two-year
Table  1.  vocational  program.
Table  4  shows  the  results  of  the  investment  Table  1  shows  weighted  average  total  costs
analysis  using different  earnings  levels  of high school  (current  expenditures  and  equipment  costs)  for  all
graduates  and  discount  rates.  A  recent  unpublished  programs  and  schools to  be $1,815.Adding foregone
survey supports  the $5,000  earnings level as the most  earnings  (assumed  annual  $5,000  earnings  level  of
plausible.  Therefore,  reporting  of  the  investment  high school graduates  and assuming part-time earnings
analysis is limited to the $5,000 earnings level.  of $2,000 over  a two  year  period), a total cost figure
Benefit-cost  ratios,  associated  with  the  six  of $10,015 results.
percent  discount  rate,  ranged  from  57.4  for  public  Adjusted  and  unadjusted  earnings  were  $6,588
services  to  2.5  for  agribusiness  program  areas.  With  and  $5,657,  respectively,  for  graduates  among  all
the  exception  of  the  agribusiness  program  area,  all  program  areas.  Assuming  a  $5,000  earnings  level had
programs  had internal rates  of return  in excess of 50  students  not  attended  junior  college,  benefits  of
percent.  Agribusiness  has  an  internal  rate  of  20  $1,588  and  $657  were  expected  to  accrue  to
percent.  graduates.  Applying  the  $10,015  full  cost  to  the
Full Costing  Analysis  benefits  resulted  in  benefit-cost  ratios  of 2.45  and
1.02.  These  were  estimated  from  adjusted  and
The  preceding  benefit-cost  analysis  focused  on  unadjusted graduate earning  levels.
125SUMMARY  for  agribusiness  programs  to  38.5  for  public  service
Total  program  costs  (exclusive  of  foregone  occupations.
earnings  and  building  depreciation)  ranged  from  A  total  program  cost  of $10,015  was  estimated
$1,148  for  public  service  related  occupations  to  when foregone  earnings of $5,000  was considered and
$2,239  for  health  occupations.  Weighted  average  part-time  employment  earnings  of  $2,000  was
costs  for  operating  vocational-technical  education  assumed.  Benefit-cost  ratios with this full  cost model
programs were $1,815.  were  2.45  and  1.02, and were computed when annual
benefits  of  $1,588  and  $657  were  specified  from
Annual  earnings  ranged  from  $5,328  for Annual  earnings  ranged  from  $5,328  for  using  the  adjusted  and  unadjusted  earnings
agribusiness  and  industry  graduates  to  $9,360  for  respectively
public  service  related  occupations.  The  weighted  Considerable  variations  in  program  costs  and
average  was  $6,588.  When  costs  and  benefits  were  benefits  were  observed  among  as  well  as  within
compared  to  ascertain  investment  profitability,  all  programs.  Additional  efforts to explain such variation
program  areas  showed  that,  on the  average,  benefits  appears  warranted,  and  would  provide  educational
exceeded  costs  under  the  assumption  that  students  planners  with  information  for  increased  program
without  additional  post-secondary  training  earned  efficiency  and effectiveness.
$5,000  annually.  Benefit-cost  ratios  ranged  from  1.6
REFERENCES
[1]  Carroll, A.  B. and  L. A.  Ihnen,  "Cost and  Returns for Two Years of Post-Secondary  Technical Schooling:  A
Pilot Study." Journal  of Political  Economy, Vol. 6,  1967.
[21  Kaufman,  Jacob  L.,  and others,  "A  Cost-Effectiveness  Study of Vocational  Education."  A paper  prepared
for the Institute for Research  on Human  Resources, University Park, Pennsylvania,  1969.
[3]  Missouri Public Junior Colleges, A  Report to the People, A report  prepared  by the legislature  committee,
Missouri Association of Junior  Colleges,  1970.
[4]  Osburn,  D.  D.,  and  F.  H.  Goishi,  "Some  Aspects  of Scale  Economies  Among  Missouri  Area  Vocational
Schools." American Journal  of Agricultural  Economics, Vol. 53, No.  5,  1971.
126

AN INVESTMENT ANALYSIS OF VOCATIONAL PROGRAMS OFFERED IN MISSOURI JUNIOR COLLEGES

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