IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp14289.html
   My bibliography  Save this paper

Expecting Better? How Young People Form Their Earnings Expectations

Author

Listed:
  • Favara, Marta

    (University of Oxford)

  • Glewwe, Paul

    (University of Minnesota)

  • Porter, Catherine

    (Lancaster University)

  • Sanchez, Alan

    (Group for the Analysis of Development (GRADE))

Abstract

Education choices are made based on the expected returns to schooling. If individuals are badly informed, they may make inefficient choices. We directly elicit young people's subjective expectations at the age of 14-15 about earnings under different educational scenarios and find these predict university enrolment by the age of 18-19. Females expect lower earnings than males, likely anticipating the reality of the labour market. Living in a poorer household, weaker numeric skills and lower self-efficacy are also associated with lower expected returns to education. Comparing expectations with the actual earnings from a nationally representative sample of individuals matched by sex, region and place of residence, we find that expectations for earnings upon completing secondary education closely match observed earnings, while there is a tendency to overestimate the returns to completing a university degree. These results hold for both males and females although with considerable variation across regions and population subgroups.

Suggested Citation

  • Favara, Marta & Glewwe, Paul & Porter, Catherine & Sanchez, Alan, 2021. "Expecting Better? How Young People Form Their Earnings Expectations," IZA Discussion Papers 14289, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14289
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp14289.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bleemer, Zachary & Zafar, Basit, 2018. "Intended college attendance: Evidence from an experiment on college returns and costs," Journal of Public Economics, Elsevier, vol. 157(C), pages 184-211.
    2. Katja Maria Kaufmann, 2014. "Understanding the income gradient in college attendance in Mexico: The role of heterogeneity in expected returns," Quantitative Economics, Econometric Society, vol. 5(3), pages 583-630, November.
    3. Hastings, Justine S. & Neilson, Christopher A. & Ramirez, Anely & Zimmerman, Seth D., 2016. "(Un)informed college and major choice: Evidence from linked survey and administrative data," Economics of Education Review, Elsevier, vol. 51(C), pages 136-151.
    4. Zachary Bleemer & Basit Zafar, 2014. "Information heterogeneity and intended college enrollment," Staff Reports 685, Federal Reserve Bank of New York.
    5. McKenzie, David & Gibson, John & Stillman, Steven, 2013. "A land of milk and honey with streets paved with gold: Do emigrants have over-optimistic expectations about incomes abroad?," Journal of Development Economics, Elsevier, vol. 102(C), pages 116-127.
    6. Matthew Wiswall & Basit Zafar, 2015. "How Do College Students Respond to Public Information about Earnings?," Journal of Human Capital, University of Chicago Press, vol. 9(2), pages 117-169.
    7. Todd Stinebrickner & Ralph Stinebrickner, 2012. "Learning about Academic Ability and the College Dropout Decision," Journal of Labor Economics, University of Chicago Press, vol. 30(4), pages 707-748.
    8. Justine Hastings & Christopher A. Neilson & Seth D. Zimmerman, 2015. "The Effects of Earnings Disclosure on College Enrollment Decisions," NBER Working Papers 21300, National Bureau of Economic Research, Inc.
    9. Basit Zafar, 2011. "How Do College Students Form Expectations?," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 301-348.
    10. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
    11. Escobal, Javier & Flores, Eva, 2008. "An Assessment of the Young Lives Sampling Approach in Peru," MPRA Paper 56483, University Library of Munich, Germany.
    12. Benoît Rapoport & Claire Thibout, 2018. "Why do boys and girls make different educational choices? The influence of expected earnings and test scores," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01781858, HAL.
    13. Bonilla-Mejía, Leonardo & Bottan, Nicolas L. & Ham, Andrés, 2019. "Information policies and higher education choices experimental evidence from Colombia," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 83(C).
    14. Benoît Rapoport & Claire Thibout, 2018. "Why do boys and girls make different educational choices? The influence of expected earnings and test scores," Post-Print hal-01781858, HAL.
    15. Adeline Delavande, 2014. "Probabilistic Expectations in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 1-20, August.
    16. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
    17. Adeline Delavande & Jinkook Lee & Seetha Menon, 2017. "Eliciting Survival Expectations of the Elderly in Low-Income Countries: Evidence From India," Demography, Springer;Population Association of America (PAA), vol. 54(2), pages 673-699, April.
    18. Rapoport, Benoît & Thibout, Claire, 2018. "Why do boys and girls make different educational choices? The influence of expected earnings and test scores," Economics of Education Review, Elsevier, vol. 62(C), pages 205-229.
    19. Paul Glewwe, 2002. "Schools and Skills in Developing Countries: Education Policies and Socioeconomic Outcomes," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 436-482, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kunz, Johannes S. & Staub, Kevin E., 2020. "Early subjective completion beliefs and the demand for post-secondary education," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 34-55.
    2. Katharina Werner, 2019. "The Role of Information for Public Preferences on Education – Evidence from Representative Survey Experiments," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 82.
    3. Pamela Giustinelli, 2022. "Expectations in Education: Framework, Elicitation, and Evidence," Working Papers 2022-026, Human Capital and Economic Opportunity Working Group.
    4. Philipp Lergetporer & Katharina Werner & Ludger Woessmann, 2021. "Does Ignorance of Economic Returns and Costs Explain the Educational Aspiration Gap? Representative Evidence from Adults and Adolescents," Economica, London School of Economics and Political Science, vol. 88(351), pages 624-670, July.
    5. Nikoloz Kudashvili & Gega Todua, 2022. "Information, Perceived Returns and College Major Choices," CERGE-EI Working Papers wp717, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Pamela Giustinelli & Charles F. Manski, 2018. "Survey Measures Of Family Decision Processes For Econometric Analysis Of Schooling Decisions," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 81-99, January.
    7. Johannes S. Kunz & Kevin E. Staub, 2016. "Subjective Completion Beliefs and the Demand for Post-Secondary Education," SOEPpapers on Multidisciplinary Panel Data Research 878, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Bobba, Matteo & Frisancho, Veronica, 2016. "Learning about Oneself: The Effects of Performance Feedback on School Choice," IZA Discussion Papers 10360, Institute of Labor Economics (IZA).
    9. Baker, Rachel & Bettinger, Eric & Jacob, Brian & Marinescu, Ioana, 2018. "The Effect of Labor Market Information on Community College Students’ Major Choice," Economics of Education Review, Elsevier, vol. 65(C), pages 18-30.
    10. Philipp Lergetporer & Katharina Werner & Ludger Woessmann, 2018. "Does Ignorance of Economic Returns and Costs Explain the Educational Aspiration Gap? Evidence from Representative Survey Experiments," CESifo Working Paper Series 7000, CESifo.
    11. Matthew Wiswall & Basit Zafar, 2011. "Belief updating among college students: evidence from experimental variation in information," Staff Reports 516, Federal Reserve Bank of New York.
    12. Ralph Stinebrickner & Todd R. Stinebrickner, 2014. "A Major in Science? Initial Beliefs and Final Outcomes for College Major and Dropout," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 426-472.
    13. Erica Blom & Brian C. Cadena & Benjamin J. Keys, 2021. "Investment over the Business Cycle: Insights from College Major Choice," Journal of Labor Economics, University of Chicago Press, vol. 39(4), pages 1043-1082.
    14. Bleemer, Zachary & Zafar, Basit, 2018. "Intended college attendance: Evidence from an experiment on college returns and costs," Journal of Public Economics, Elsevier, vol. 157(C), pages 184-211.
    15. repec:hal:spmain:info:hdl:2441/527ht1a96e837pq2dubgo2953q is not listed on IDEAS
    16. Brade, Raphael, 2022. "Social Information and Educational Investment - Nudging Remedial Math Course Participation," MPRA Paper 113076, University Library of Munich, Germany.
    17. Patnaik, Arpita & Venator, Joanna & Wiswall, Matthew & Zafar, Basit, 2022. "The role of heterogeneous risk preferences, discount rates, and earnings expectations in college major choice," Journal of Econometrics, Elsevier, vol. 231(1), pages 98-122.
    18. Diaz-Serrano, Luis & Nilsson, William, 2022. "The reliability of students’ earnings expectations," Labour Economics, Elsevier, vol. 76(C).
    19. Grewenig, Elisabeth & Lergetporer, Philipp & Werner, Katharina & Woessmann, Ludger, 2022. "Incentives, search engines, and the elicitation of subjective beliefs: Evidence from representative online survey experiments," Journal of Econometrics, Elsevier, vol. 231(1), pages 304-326.
    20. Ballarino, Gabriele & Filippin, Antonio & Abbiati, Giovanni & Argentin, Gianluca & Barone, Carlo & Schizzerotto, Antonio, 2022. "The effects of an information campaign beyond university enrolment: A large-scale field experiment on the choices of high school students," Economics of Education Review, Elsevier, vol. 91(C).
    21. Friedman-Sokuler, Naomi & Justman, Moshe, 2020. "Gender, culture and STEM: Counter-intuitive patterns in Arab society," Economics of Education Review, Elsevier, vol. 74(C).

    More about this item

    Keywords

    subjective expectations; earning realizations; Young Lives; Peru;
    All these keywords.

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp14289. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.