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Career Rankings by ROI and salary

praveenghanta — Sun, 28 Dec 2008 17:08:06 +0000

A college education has many rewards, but it is primarily an investment, and its return can be calculated by measuring the increase in salary that it brings. While college has many intangible benefits that are difficult to measure, the NPV and IRR of future income can be used to measure its rate of return. Unfortunately, very few comparisons have been done to rank career paths on these metrics.

In the table below, I build on my previous research by ranking 22 different career paths by return on investment. The careers are ranked by Net Present Value and rate of return (methodology explained at bottom). The career rankings take into account numerous factors for each career, including the length and expense of education, salary potential, and unemployment risk.

Career ROI Rankings:

Career	Average Salary	NPV	After-tax earnings (lifetime)	Rate of Return
1. Law	$124,230	$186,200	$4,709,000	15%
	Attorneys rank high on the list since their education is complete just three years after college, and they can step right into six-figure salaries.
2. Chemical, Petroleum, Nuclear Engineering	$85,000	$174,100	$3,271,000	19.3%
	Petroleum and Chemical engineers step into starting salaries over 60k, leading to a high return on a 4-year education.
3. Pharmacy	$98,960	$173,305	$3,833,000	16.5%
	Pharmacists typically must complete a six year program before starting work, but high demand for pharmacists enables them to move directly into $90k per year positions upon graduation.
4. Computer Science	$83,160	$170,000	$3,335,000	19%
	Computer science grads start work immediately after college with salaries above 50k, giving them a fast payback on their investment, but lifetime earnings potential is lower than in some professional fields.
5. Medicine – Specialist	$190,000	$148,000	$5,994,000	12.75%
	Doctors have always enjoyed good incomes, but their educational investment is so high that it reduces their educational ROI more than is commonly realized.
6. Accounting	$69,500	$144,900	$3,038,000	17.9%
	Accountants can start work right after college, and their pay increases considerably once they’ve completed their CPA certification.
7. Stockbroker	$90,470	$125,600	$3,194,000	16%
	Stockbrokers start with a low salary, but can build up to a comfortable 90k with time and effort.
8. Civil / Mechanical Engineering	$75,200	$112,000	$2,860,000	16.0%
	Civil and Mechanical engineers tend to lag engineers in other fields in terms of income and career ROI.
9. Medicine – Primary Care	$161,500	$108,900	$5,246,000	12.2%
	Primary Care doctors have an educational investment almost as high as medical specialists, but do not receive commensurate salaries.
10. Physical Scientist (Astronomy, Physics, Chemistry, etc)	$78,100	$108,600	$3,177,000	14.7%
	Physical scientists have to complete eight years of education before moving into a full time research or academic position.
11. Airline Pilot	$148,410	$106,241	$3,279,000	13.75%
	Airline pilots must work for years at low paying regional air or charter jobs before making it to a major carrier, but the final payoff is a relatively high salary and reasonable working hours.
12. Nursing (RN)	$62,480	$106,170	$2,598,000	16.75%
	Nurses can finish training in as little as three years, and earn relatively good salaries right from the start, with job prospects virtually anywhere in the country.
13. Police Officer	$50,000	$78,000	$1,748,000	9.6%
	Police Officers are well compensated relative to the length of their education, but take risks not associated with most other careers.
14. Biological / Life Scientist	$69,175	$71,720	$2,812,000	13.3%
	Biological scientists earn lower salaries than their colleagues in physical sciences, but have to undergo the same amount of training.
15. Financial Analyst	$81,700	$54,000	$3,042,000	12.20%
	While completing an MBA can nearly double a financial analyst’s salary, the high tuition and lost earnings diminish the rate of return.
16. Insurance Underwriter/Appraiser	$57,795	$54,000	$2,342,000	13.20%
	Insurance underwriters and appraisers enjoy a relatively steady income after college.
17. Architecture	$73,650	$50,000	$2,710,000	12.2%
	Architects have decent salaries in the long run, but they must first complete a five year Bachelor’s program, and then spend several years as interns before becoming full-fledged architects.
18. Human Resources Specialist	$56,740	$25,000	$2,164,000	11.50%
	HR Specialists start working quickly, but their salaries don’t rise as significantly as in other careers.
19. Graphic Design	$45,340	$18,220	$1,994,000	11.2%
	Graphic Designers can start work right after finishing college, but competition for positions is high, keeping salaries down.
20. Psychologists	$70,000	$11,000	$2,373,000	10.5%
	Psychologists’ long training period and low salary compared to MDs decreases returns significantly.
21. Teaching (K-12)	$52,450	-$6,630	$1,930,000	9.6%
	Teachers are not particularly well compensated in the US, and since their starting salaries are particularly low, the NPV of an investment in a teaching career is actually negative.
22. English (PhD)	$60,000	-$15,250	$2,165,000	9.25%
	At the bottom of the rankings are Humanities majors. If an English or Humanities PhD candidate tells you that they didn’t go into it for the money, they’re not lying: this career path has a negative return on investment in income terms.

Annotated spreadsheet with all calculations: HTML | XLS with formulas

Definition of Terms:

NPV: This is the Net Present Value of the student’s investment in education, based on a 10% discount rate. 10% is a common rate of return expected for long-term investments, and it helps provides a fair benchmark of the value of each career path.

IRR: This is the Internal Rate of Return of the educational investment. IRR tends to favor shorter time horizons, so shorter educational paths like engineering are rewarded when measured via IRR.

Lifetime Earnings: This is a simple sum of the lifetime after-tax earnings of each career path from age 18 through age 65.

Methodology:

All salary data was taken from the BLS May 2007 Occupation Employment and Wages Estimates. The BLS data measures only base salaries, and does not include bonuses, profit-sharing, or other similar forms of compensation in its estimates. College was assumed to cost $20,000 per year (this sounds low, but is an average for public and private colleges, after all scholarships, grants, and student work are taken into account). Professional school costs, and graduate and resident stipend data were sourced variously, and are noted in the spreadsheet. Inflation at 2% and progressive taxation are also accounted for in the calculations.

The rate of return for each field was calculated by determining the IRR for each field, taking into account the cost of college and measuring total after-tax gains from age 22 to age 65. The NPV of each career path was also calculated with a discount rate of 10%. Finally, lifetime after-tax earnings were calculated as a simple sum to provide another measure of earnings potential.

What People Make III: Career ROI is as important as salary

praveenghanta — Mon, 07 Jul 2008 02:00:23 +0000

What is the purpose of higher education? While a minority of college students have enough wealth to study as a hobby, college students generally view college as a step towards a career, with higher earnings potential as one motivation. But while a four-year college education generally has the same price tag regardless of degree, an individual’s future earnings potential vary widely depending on the degree chosen. Here is a partial ranking of careers, ranked by NPV and rate of return (details on the methodology at bottom):

Career ROI Rankings:

Career	Average Salary	NPV	After-tax earnings (lifetime)	Rate of Return
1. Law	$124,230	$188,000	$4,825,000	15%
	Attorneys rank high on the list since their education is complete just three years after college, and they can step right into six-figure salaries.
2. Computer Science	$83,160	$184,000	$3,534,000	19%
	Computer science grads start work immediately after college with salaries above 50k, giving them the fastest payback on their investment. Lifetime earnings potential is lower than in some professional fields, however.
3. Pharmacy	$98,960	$168,000	$3,885,000	16.2%
	Pharmacists typically must complete a six year program before starting work, but high demand for pharmacists enables them to move directly into $90k per year positions upon graduation.
4. Medicine	$179,000	$151,000	$5,908,000	12.9%
	Doctors have always enjoyed good incomes, but their educational investment is so high that it reduces their educational ROI more than is commonly realized.
5. Accounting	$69,500	$148,600	$3,151,000	17.9%
	Accountants can start work right after college, and their pay increases considerably once they’ve completed their CPA certification.
6. Airline Pilot	$148,410	$125,000	$3,578,000	14.25%
	Airline pilots must work for years at low paying regional air or charter jobs before making it to a major carrier, but the final payoff is a relatively high salary and reasonable working hours.
7. Nursing (RN)	$62,480	$100,000	$2,633,000	16.3%
	Nurses can finish training in as little as three years, and earn relatively good salaries right from the start, with job prospects virtually anywhere in the country.
8. Architecture	$73,650	$54,000	$2,839,000	12.3%
	Architects have decent salaries in the long run, but they must first complete a five year Bachelor’s program, and then spend several years as interns before becoming full-fledged architects.
9. Graphic Design	$45,340	$24,850	$2,125,000	11.6%
	Graphic Designers can start work right after finishing college, but competition for positions is high, keeping salaries down.
10. Teaching (K-12)	$52,450	-$10,100	$1,986,000	9.4%
	Teachers are not particularly well compensated in the US, and since their starting salaries are particularly low, the NPV of an investment in a teaching career is actually negative.
11. English (PhD)	$60,000	-$14,000	$2,301,000	9.3%
	At the bottom of the rankings are Humanities majors. If an English or Humanities PhD candidate tells you that they didn’t go into it for the money, they’re not lying: this career path has a negative return on investment in income terms.

Annotated spreadsheet with all calculations: HTML | XLS with formulas

Law, Computer Science, and Pharmacy majors take top honors in terms of career ROI, while (perhaps not surprisingly) artists, teachers, and Humanities professors come out on bottom. Doctors and airline pilots are further down the list than one might suspect, principally because they spend so many years in training before achieving high compensation.

Definition of Terms:

IRR: This is the Internal Rate of Return of the educational investment. IRR tends to favor shorter time horizons, so shorter educational paths like computer science are rewarded when measured via IRR.

Lifetime Earnings: This is a simple sum of the lifetime after-tax earnings of each career path from age 18 through age 65.

More info on Methodology:

All salary data was taken from the BLS May 2007 Occupation Employment and Wages Estimates. College was assumed to cost $20,000 per year (this sounds low, but is an average for public and private colleges, after all scholarships, grants, and student work are taken into account). Professional school costs, and graduate and resident stipend data were sourced variously, and are noted in the spreadsheet. Inflation at 2% and progressive taxation were also accounted for in the calculations.