IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/26420.html
   My bibliography  Save this paper

The Effect of Changes in the Skill Premium on College Degree Attainment and the Choice of Major

Author

Listed:
  • Ran Abramitzky
  • Victor Lavy
  • Maayan Segev

Abstract

We study the impact of financial incentives on higher education decisions and the choice of major. We rely on a reform whereby Israeli kibbutzim shifted from their traditional policy of equal sharing to productivity-based wages. We use for identification the staggered implementation of this reform in different kibbutzim. In this setting of very low initial returns to education, we find that the dramatic increase in the rate of return and its sharp variation across fields of study led to a large increase in the probability of receiving a Bachelor degree, especially in STEM fields of study that are expected to yield higher financial returns. For men this increase was largely in computer science and engineering, and for women in biology, chemistry and computer science. Our findings suggest that investment in higher education and the choice of major are responsive to increases in the return to education for both men and women.

Suggested Citation

  • Ran Abramitzky & Victor Lavy & Maayan Segev, 2019. "The Effect of Changes in the Skill Premium on College Degree Attainment and the Choice of Major," NBER Working Papers 26420, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26420
    Note: CH DEV ED LS PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w26420.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daniel Münich & Jan Svejnar & Katherine Terrell, 2005. "Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 100-123, February.
    2. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," Discussion Papers 07-048, Stanford Institute for Economic Policy Research.
    3. Arcidiacono, Peter & Hotz, V. Joseph & Kang, Songman, 2012. "Modeling college major choices using elicited measures of expectations and counterfactuals," Journal of Econometrics, Elsevier, vol. 166(1), pages 3-16.
    4. Teodora Boneva & Christopher Rauh, 2017. "Socio-Economic Gaps in University Enrollment: The Role of Perceived Pecuniary and Non-Pecuniary Returns," Working Papers 2017-080, Human Capital and Economic Opportunity Working Group.
    5. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2008. "Earnings Functions and Rates of Return," Journal of Human Capital, University of Chicago Press, vol. 2(1), pages 1-31.
    6. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    7. Ran Abramitzky & Victor Lavy, 2014. "How Responsive Is Investment in Schooling to Changes in Redistributive Policies and in Returns?," Econometrica, Econometric Society, vol. 82(4), pages 1241-1272, July.
    8. Brainerd, Elizabeth, 1998. "Winners and Losers in Russia's Economic Transition," American Economic Review, American Economic Association, vol. 88(5), pages 1094-1116, December.
    9. Joseph G. Altonji & Seth D. Zimmerman, 2018. "The Costs of and Net Returns to College Major," NBER Chapters, in: Productivity in Higher Education, pages 133-176, National Bureau of Economic Research, Inc.
    10. James J. Heckman & Paul A. LaFontaine, 2010. "The American High School Graduation Rate: Trends and Levels," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 244-262, May.
    11. Matthew Wiswall & Basit Zafar, 2015. "Determinants of College Major Choice: Identification using an Information Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 791-824.
    12. Flabbi, Luca & Paternostro, Stefano & Tiongson, Erwin R., 2008. "Returns to education in the economic transition: A systematic assessment using comparable data," Economics of Education Review, Elsevier, vol. 27(6), pages 724-740, December.
    13. Andren, Daniela & Earle, John S. & Sapatoru, Dana, 2005. "The wage effects of schooling under socialism and in transition: Evidence from Romania, 1950-2000," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 300-323, June.
    14. Adeline Delavande & Basit Zafar, 2019. "University Choice: The Role of Expected Earnings, Nonpecuniary Outcomes, and Financial Constraints," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2343-2393.
    15. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1111-1159.
    16. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    17. Philip Oreopoulos & Kjell G. Salvanes, 2011. "Priceless: The Nonpecuniary Benefits of Schooling," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 159-184, Winter.
    18. repec:eee:labchp:v:3:y:1999:i:pb:p:2809-2857 is not listed on IDEAS
    19. Svejnar, Jan, 1999. "Labor markets in the transitional Central and East European economies," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 42, pages 2809-2857, Elsevier.
    20. Moock, Peter R. & Patrinos, Harry Anthony & Venkataraman, Meera, 2003. "Education and earnings in a transition economy: the case of Vietnam," Economics of Education Review, Elsevier, vol. 22(5), pages 503-510, October.
    21. Long, Mark C. & Goldhaber, Dan & Huntington-Klein, Nick, 2015. "Do completed college majors respond to changes in wages?," Economics of Education Review, Elsevier, vol. 49(C), pages 1-14.
    22. Basit Zafar, 2013. "College Major Choice and the Gender Gap," Journal of Human Resources, University of Wisconsin Press, vol. 48(3), pages 545-595.
    23. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    24. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 352-352.
    25. Orazem, Peter F. & Vodopivec, Milan, 1997. "Value of human capital in transition to market: Evidence from Slovenia," European Economic Review, Elsevier, vol. 41(3-5), pages 893-903, April.
    26. Kugler, Adriana & Tinsley, Catherine H. & Ukhaneva, Olga, 2017. "Choice of Majors: Are Women Really Different from Men?," IZA Discussion Papers 10947, Institute of Labor Economics (IZA).
    27. Ahu Gemici & Matthew Wiswall, 2014. "Evolution Of Gender Differences In Post‐Secondary Human Capital Investments: College Majors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 23-56, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arpita Patnaik & Matthew J. Wiswall & Basit Zafar, 2020. "College Majors," NBER Working Papers 27645, National Bureau of Economic Research, Inc.
    2. Rodrigo Adão & Martin Beraja & Nitya Pandalai-Nayar, 2020. "Technological Transitions with Skill Heterogeneity Across Generations," NBER Working Papers 26625, National Bureau of Economic Research, Inc.

    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. Boneva, Teodora & Golin, Marta & Rauh, Christopher, 2022. "Can perceived returns explain enrollment gaps in postgraduate education?," Labour Economics, Elsevier, vol. 77(C).
    2. Matthew Wiswall & Basit Zafar, 2016. "Human Capital Investments and Expectations about Career and Family," NBER Working Papers 22543, National Bureau of Economic Research, Inc.
    3. 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.
    4. Arpita Patnaik & Matthew J. Wiswall & Basit Zafar, 2020. "College Majors," NBER Working Papers 27645, National Bureau of Economic Research, Inc.
    5. Attanasio, Orazio P. & Kaufmann, Katja M., 2017. "Education choices and returns on the labor and marriage markets: Evidence from data on subjective expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 35-55.
    6. Yanqing Ding & Wei Li & Xin Li & Yinduo Wu & Jin Yang & Xiaoyang Ye, 2021. "Heterogeneous Major Preferences for Extrinsic Incentives: The Effects of Wage Information on the Gender Gap in STEM Major Choice," Research in Higher Education, Springer;Association for Institutional Research, vol. 62(8), pages 1113-1145, December.
    7. 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.
    8. Gizem Koşar & Cormac O'Dea, 2022. "Expectations Data in Structural Microeconomic Models," Staff Reports 1018, Federal Reserve Bank of New York.
    9. Michele Giannola, 2022. "Parental Investments and Intra-household Inequality in Child Human Capital: Evidence from a Survey Experiment," CSEF Working Papers 650, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 06 Dec 2022.
    10. Tjaša Bartolj & Aleš AhCan & Aljoša Feldin & Sašo Polanec, 2013. "Evolution of private returns to tertiary education during transition: evidence from Slovenia," Post-Communist Economies, Taylor & Francis Journals, vol. 25(3), pages 407-424, September.
    11. Ran Abramitzky & Victor Lavy, 2014. "How Responsive Is Investment in Schooling to Changes in Redistributive Policies and in Returns?," Econometrica, Econometric Society, vol. 82(4), pages 1241-1272, July.
    12. McGuinness, Seamus & Kelly, Elish & Pham, Thi Thu Phuong & Ha, Thi Thu Thuy & Whelan, Adele, 2021. "Returns to education in Vietnam: A changing landscape," World Development, Elsevier, vol. 138(C).
    13. Delavande, Adeline & Del Bono, Emilia & Holford, Angus, 2022. "Academic and non-academic investments at university: The role of expectations, preferences and constraints," Journal of Econometrics, Elsevier, vol. 231(1), pages 74-97.
    14. Kettlewell, Nathan & Walker, Matthew J. & Yoo, Hong Il, 2024. "Alternative Models of Preference Heterogeneity for Elicited Choice Probabilities," IZA Discussion Papers 16821, Institute of Labor Economics (IZA).
    15. Shimeng Liu & Weizeng Sun & John V. Winters, 2019. "Up In Stem, Down In Business: Changing College Major Decisions With The Great Recession," Contemporary Economic Policy, Western Economic Association International, vol. 37(3), pages 476-491, July.
    16. Fossen, Frank M. & Glocker, Daniela, 2017. "Stated and revealed heterogeneous risk preferences in educational choice," European Economic Review, Elsevier, vol. 97(C), pages 1-25.
    17. Sergey Alexeev, 2023. "Technical change and wage premiums amongst skilled labour: Evidence from the economic transition," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(1), pages 189-216, January.
    18. Koşar, Gizem & Ransom, Tyler & van der Klaauw, Wilbert, 2022. "Understanding migration aversion using elicited counterfactual choice probabilities," Journal of Econometrics, Elsevier, vol. 231(1), pages 123-147.
    19. Kiessling, Lukas, 2021. "How do parents perceive the returns to parenting styles and neighborhoods?," European Economic Review, Elsevier, vol. 139(C).
    20. Brunello, Giorgio & Crivellaro, Elena & Rocco, Lorenzo, 2010. "Lost in Transition? The Returns to Education Acquired under Communism 15 Years after the Fall of the Berlin Wall," IZA Discussion Papers 5409, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • 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:nbr:nberwo:26420. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.