Choosing the Field of Study in Post-Secondary Education : Do Expected Earnings Matter ?
This paper examines the determinants of the choice of the major when the length ofstudies is uncertain, by using a framework in which students entering post-secondary educationare assumed to anticipate their future earnings. For that purpose, we use Frenchdata coming from the 1992 and 1998 Génération surveys collected by the Centre d’Etudeset de Recherches sur l’Emploi et les Qualifications (CEREQ, Marseille). Our econometricapproach is based on a semi-structural three-equations model, which is identified thanksto some exclusion restrictions. We exploit in particular exogenous variations in the earningsreturns associated with the majors across the business cycle, in order to identify thecausal effect of expected earnings on the probability of choosing a given major. Relying ona three-component mixture distribution, we account for correlation between the unobservedindividual-specific terms affecting the preferences for the majors, the unobserved individualspecificfactors entering the equation determining the length of studies within each major,and that affecting the labor market earnings equation. Following Arcidiacono and Jones(2003), we use the EM algorithm with a sequential maximization step to produce consistentparameter estimates. Simulating for each given major a 10 percent increase in the expectedearnings suggests that expected earnings have a statistically significant but quantitativelysmall impact on the allocation of students across majors.
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