As you may have noticed, economics is a difficult major. Are there any rewards for all this effort? The U.S. census publication discussed in the last problem suggests that there might be. There are tables reporting wage income by the field in which one gets a degree. For bachelor’s degrees, the most lucrative majors are economics and engineering. The average wage incomes for economists are about $28,000 per year and for engineers are about $27,000. Psychology majors average about $15,000 a year and English majors about $14,000 per year.
(a) Can you think of any explanation for these differences?
(b) The same table shows that the average person with an advanced degree in business earns $38,000 per year and the average person with a degree in medicine earns $45,000 per year. Suppose that an advanced degree in business takes 2 years after one spends 4 years getting a bachelor’s degree and that a medical degree takes 4 years after getting a bachelor’s degree. Suppose that you are 22 years old and have just finished college. If r = .05, find the present value of lifetime earnings for a graduating senior who will get an advanced degree in business and earn the average wage rate for someone with this degree until retiring at 65. ___________. Make a similar calculation for medicine. ________.