CA Evaluation 1

Cost Benefit Evaluation of Career Academies

Nia Harrison, Nikola Juris, Dori Stern, and Steven Stern

Career Academies provides high schools with a systematic approach to facing various challenges and to preparing students for employment and post-secondary education. It typically has the following features: it is organized as a small learning community, it combines academic and technical curricula around a career, and is establishes partnerships with local employers (Kemple & Scott-Clayton, 2004). Using an evaluation of the program by Kemple and Scott-Clayton (2004), we estimated the costs and benefits of the program as shown in Table 1. Table 2 shows how sensitive our results are to the assumptions we made in the initial calculations.[1]

Table 1
Boys / Girls
Effect on average monthly earnings / $212 / $39
Effect on months employed / 2.8 / 0.3
Effect on average hours worked / 4.2 / 0.4
Effect on average hourly wage / $0.74 / $0.26
Effect on probability of graduating high school on time / 0.023 / 0.007
Effect on probability of completing high school / 0.001 / 0.007
Effect on probability of earning certificate/license / 0.034 / -0.008
Effect on probability of earning associate’s degree / 0.015 / 0.014
Effect on probability of earning bachelor’s degree / 0.023 / 0.001
Average high school wage per hour / $15 / $13.50
Annual earnings / $30,000 / $27,000
Cost of the program / $450 / $450
Annual benefit of completing high school / $2,544 / $468
Annual benefit of getting certificate/license / $3,300 / $2,970
Annual benefit of getting associate’s degree / $6,300 / $5,670
Annual benefit of getting bachelor’s degree / $13,800 / $12,420
Discount factor / 0.9 / 0.9
Long-term benefit of completing high school / $25.44 / $32.76
Long-term benefit of getting certificate/license / $1,122 / -$238
Long-term benefit of getting associate’s degree / $945 / $794
Long-term benefit of getting bachelor’s degree / $3,174 / $124
Net benefits / $4,816 / $263

Kemple and Scott-Clayton (2004) found that the program increases average monthly earnings by $212 ($39) for boys (girls), increases months employed by 2.8 (0.3) months for boys (girls), increases the average hours worked per week by 4.2 (0.4) hours for boys (girls), and increases the hourly wage by $0.74 ($0.26) for boys (girls). They reported that Career Academies increases the probability of graduating high school on time by 2.3% (0.7%) for boys (girls), increases the probability of completing high school by 0.1% (0.7%) for boys (girls), and increases the probability of earning a certificate or license by 3.4% (-0.8%) for boys (girls). The program also increases the probability of earning an associate’s degree by 1.5% (1.4%) for boys (girls) and increases the probability of earning a bachelor’s degree by 2.3% (0.1%) for boys (girls). We assumed that an average male (female) high school graduate earns $15 ($13.50) per hour. Assuming one works 2000 hours per year, we have base annual earnings of $30,000 ($27,000) for boys (girls). The cost of the program was estimated at $650, and a price deflator of 0.7 was used to arrive at a real cost of $450.

The annual benefit of completing high school was calculated as the program’s effect on average monthly earnings multiplied by 12 months per year, resulting in $2,544 ($468) for boys (girls). The annual benefit of getting a certificate or license was estimated a 11% annual earnings increase (Card, 1999). Similarly, the annual benefit of getting an associate’s degree was calculated as 21% (Card, 1999) of the annual high school earnings. Card (1999) also reports that the annual percentage increase in wages associated with attaining a bachelor’s degree is 46%, implying that the annual benefit would be $13,800 ($12,420) for boys (girls).

Table 2
Assumption / Net Benefit of the Program
Average high school wage per hour / Boys / $15 / $4,816
$30 / $10,057
Girls / $13.50 / $263
$27 / $944
Cost of the program / Boys / $450 / $4,816
$900 / $4,366
Girls / $450 / $263
$900 / -$186.84
Discount factor / Boys / 0.9 / $4,816
0.8 / $2,183
Girls / 0.9 / $263
0.8 / -$93
Depreciating benefits / Boys / Base (1/1-beta) / $4,816
1.504 / $342
Girls / Base (1/1-beta) / $263
1.504 / -$343
Cost of program (occurred until age 18) / Boys / $450 / $4,816
$1220 / $4,047
Girls / $450 / $263
$1220 / -$506

In order to translate these calculations into long-term benefits, we assumed that the annual discount factor was 0.9. The long-term benefit of completing high school was calculated as the Career Academy’s effect on the probability of completing high school multiplied by the annual benefit of completing high school and then discounting the benefits, yielding $25.44 ($32.76) for boys (girls). The long-term benefit of getting a certificate/license was estimated by multiplying the program’s effect on the probability of earning a certificate/license by the annual benefit of earning it and discounting the benefits, resulting in $1,122 (-$238) for boys (girls). Similar methodology was applied to the long-term benefits of the program’s effect on the probability of earning an associate’s degree and a bachelor’s degree. Adding up all the long-term benefits and subtracting the cost of Career Academies yields a net benefit of $4,816 ($263) for boys (girls).

To measure the impact of assuming that the program’s benefits depreciate over time, we considered the possibility that benefits would depreciate by 80% per year during the teen years. Considering that the program is offered to high school students, the average age of participation is 16, implying two years of depreciation. This leads to a multiplier of 1.504 for discounting of future benefits rather than the base case multiplier of 10. The reduction in the multiplier causes net benefits to decrease to $342 (-$343) for boys (girls).

One way to deal with this concern is to consider the possibility that the participant would continue with the program every year until he/she is 18 years old, thus not allowing the benefits to dissipate. This implies an extra cost of program participation, resulting in a new cost of $1,220 and a new net benefit of $4,047 (-$506) for boys (girls). An examination of the net benefits of the program in all the sensitivity analyses indicate that Career Academies yield modest monetary benefits, mainly for boys, and the estimated results are not very robust to the assumptions made.

References

Card, D. (1999). “The Causal Effect of Education on Earnings.” In O. Ashenfelter and D. Card (Eds.). Handbook of Labor Economics, 3, pp. 1801-1863. Amsterdam: North-Holland.

Harrison, Nia, Nikola Juris, Dori Stern, and Steven Stern (2008). “Methodology for Youth Development Cost-Benefit Analyses.”

Kemple, J. and J. Scott-Clayton (2004). “Career Academies Impact on Labor Market Outcomes and Educational Attainment.” MDRC. Retrieved March 6, 2008, from the World Wide Web:

[1] Details of Methodology are available at Harrison, Juris, Stern, and Stern (2008).