In a hypothetical country, the average wage of five 40-year-old citize

In a hypothetical country, the average wage of five 40-year-old citizens with college education is $36,896, and the average wage of five 40-year-old citizens with high school education is $25,864.

What is the returns-to-college education in the country? Is there any limitation of this analysis? Explain your answer.

ANSWER

Dividing the average salary of 40-year-old college graduates by the average salary of 40-year-old high school graduates results in $36,896/$25,864 = 1.426. Hence, college education is likely to raise a citizen’s income by 42.6 percent.
Yes, there is a major limitation of this analysis. It does not make sense to generalize overall returns to education on the basis of a sample representing a single age grou