Final answer:
The 10% calculation is a simplistic and imprecise measure of the annual return on investment in education. It does not account for the variety of factors that influence earnings over time and differs from the broader social rate of return. Accurate estimates of returns on education typically consider a range of 10-15%, based on more comprehensive economic studies.
Step-by-step explanation:
The calculation of 10%, derived as ($120,000 - $100,000) / (15-13), represents the average increase in yearly income resulting from each additional year of education. This calculation, however, is a simplistic approach to estimating the annual return on investment in education. A more accurate assessment would involve a myriad of factors including the individual's chosen field, the quality of education, and varying economic conditions over time.
Furthermore, the private rate of return to education differs from the social rate of return. Private returns accrue to the individual in terms of higher earnings, whereas social returns include broader benefits to society such as lower crime rates and higher civic engagement. Typically, economic studies estimate that the annual return to additional education falls within a range of 10-15%, factoring in the opportunity costs of education and potential earnings growth over time.