Question:
Is there a strong correlation between starting salaries for entry-level software engineers and the institution they matriculated from? For example, one may expect that an individual graduating from Stanford would have a much higher starting salary than, say, the University of North Dakota. Or does the low supply of labor and high demand off-set any gain an individual may experience from matriculating from a top institution? (especially when considering a relatively higher expected cost for that top institution). In other words, does it really pay to go to a large or highly selective engineering school because of the higher starting salary? (I'm assuming a higher salary, in this case).Answer:
John Green, Nicole Swepson, and I recently completed a paper, College Quality as Revealed by Willingness-to-Pay for College Graduates, that addresses this question. First, we examined the correlation between traditional measures of college quality such as those developed by Forbes or U.S. News and World Report and the average starting salary of students from each school. About 30% of the variation in these rankings can be explained by the average starting salary of their graduates. However, the starting salary reflects the mix of majors in each school, and so average salaries in engineering schools will be higher than the average salary in schools specializing in the fine arts. Almost 50% of the college ranking is explained by the starting salary of its graduates relative to the market average starting pay for graduates with the same mix of majors.
The question is, how much of the salary of a college’s graduates is based on the value added by the college and how much of it is based on the abilities the student already had before going to college. For that reason, we controlled for the average entrance exam scores (ACT and SAT) and then measured the added salary that could be associated with what the student would have learned at the college. Only about 1% of the college’s reputation score on these national rankings can be attributed to the college’s value added beyond the mix of majors that it offers and the skills of its students at the time of entry.
What that means is that an able student entering a program in software engineering will earn about the same whether s/he goes to a highly ranked or lower ranked institution. This is similar to the findings of Dale and Krueger (2002) who found that those who applied to Ivy League institutions with records comparable to those admitted to Ivy League institutions earned the same amount whether they went to the elite school or another college. The exception is that applicants from low income households did earn more benefit from going to an elite college compared to equally qualified low income students who went to nonelite institutions (Pallais, 2015).
This does not mean that elite schools are not useful. Elite schools provide their students an elite group of very able peers. It may be that the most valuable service provided by elite schools is to expose their students to one another. Less elite schools cannot provide the same concentration of gifted peers.
Dale, S.B., and A.B. Krueger. 2002. "Estimating the payoff to attending a more selective college: An application of selection on observables and unobservables." The Quarterly Journal of Economics 117 (4): 1491-1527.
Pallais, Amanda. 2015. “Small Differences that Matter: Mistakes in Applying to College.” Journal of Labor Economics 33(2): 493-520.
