Working Paper: NBER ID: w30331
Authors: Rodney J. Andrews; Scott A. Imberman; Michael F. Lovenheim; Kevin M. Stange
Abstract: Motivated by the large returns to skill in the labor market, there is a growing body of research examining labor market returns to college major. Prior research focuses almost exclusively on mean effects and pays little attention to earnings growth and variability. Using data from Texas on public K-12 students followed through college and into the labor market, we find that the focus on mean differences mask important features of the returns to college majors. First, earnings growth varies with major choice, making returns sensitive to the experience distribution of the sample. Second, quantile treatment effect estimates show considerable cross sectional differences in earnings returns. Third, major choice affects earnings variability within workers over time. We use our results to simulate a lifecycle utility model and compare mid-career utility and mean earnings returns across fields while highlighting the important role of risk preferences. For four-year students, utility returns align with earnings returns, and utility returns increase as students become more risk averse. Results for two-year students are broadly similar, though risk preferences interact with cross-sectional earnings returns variation in complex ways that highlight the importance of different dimensions of risk in driving the returns to major choice.
Keywords: college major; earnings variability; labor market returns; career trajectories
JEL Codes: I23; I26; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| college major choice (M39) | earnings growth (O49) |
| college major choice (M39) | earnings variability (J31) |
| college major choice (M39) | earnings levels (J31) |
| specific majors (M49) | trajectory of earnings over time (J31) |
| average earnings effects (J31) | variation across workers (J29) |
| major choice (M49) | stability of earnings (J31) |
| how majors are aggregated (C43) | estimates of returns (C13) |