Table 217 of the 2006 U.S. Statistical Abstract shows that, among all 25-34 year-olds, the average annual earnings of a high school graduate with no further education was $26,073 while the average annual earnings of a college graduate with no further education was $43,794 is 2003.
(a) Assuming college requires five years, show that the annual return to each year of college education averages 10.9%.
(b) It is typically thought that this type of calculation of the returns to schooling is biased, because it doesn't take into account innate ability (i.e., ability in the workplace not due to college) or innate motivation. If this criticism is true, is the actual return to each year of a college education more than or less than 10.9%?