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Was Your Degree Worth It? Heterogeneous Returns to Higher Education, Fields of Study and Skill Mismatch

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  • Lorenzo Navarini
  • Dieter Verhaest

Abstract

Returns to higher education vary substantially between and within fields of study. This paper studies whether occupational sorting at labor market entry contributes to this heterogeneity in early-career realized returns. We estimate a generalized sequential Roy model of yearly higher education enrollment choices, skill mismatch at entry, and subsequent labor market outcomes. Identification combines persistent latent heterogeneity with exclusion restrictions based on distance to programs and residual variation in graduation timing. Individuals with a higher probability of enrolling in higher education obtain higher returns, but also experience the largest losses in realized returns when they start in mismatched occupations. In counterfactual decompositions, entry mismatch accounts for a substantial share of low, and in some cases negative, early-career realized wage returns.

Suggested Citation

  • Lorenzo Navarini & Dieter Verhaest, 2026. "Was Your Degree Worth It? Heterogeneous Returns to Higher Education, Fields of Study and Skill Mismatch," RFBerlin Discussion Paper Series 26196, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26196
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    Keywords

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    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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