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The choice of major: effects on wages and an evaluatio of the no-switching majors rule

  • Daniel dos Santos
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    I estimate a dynamic discrete choice model of the decision of going to college in a speci?c major. Dynamics in the model result from a correlated bayesian learning structure about individual comparative advantages in the labor mar- ket, which allows me to decompose the income gains associated to college ed- ucation into three components: (i) human capital accumulation, (ii) access to specialized segments of the labor market, and (iii) better exploration of com- parative advantages due to the use of information acquired in college. The estimation suggests scienti?c majors are especially bene?tted from (ii) whereas in non-scienti?c occupations the e¤ect (i) dominates. I then use the estimated structural parameters to simulate the impact of restrictions to changes of major during college, a policy commonly found outside North America. The results suggest that if American students were not allowed to switch majors, they would have welfare losses equivalent to their ?rst year of labor income after college.

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    Paper provided by Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto in its series Working Papers with number 09_06.

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    Handle: RePEc:fea:wpaper:09_06
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    1. Hotz, V.J. & Miller, R.A., 1991. "Conditional Choice Probabilities and the Estimation of Dynamic Models," GSIA Working Papers 1992-12, Carnegie Mellon University, Tepper School of Business.
    2. Susumu Imai & Neelam Jain, 2005. "Bayesian Estimation of Dynamic Discrete Choice Models," 2005 Meeting Papers 432, Society for Economic Dynamics.
    3. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
    4. Michael P. Keane & Kenneth I. Wolpin, 1994. "The solution and estimation of discrete choice dynamic programming models by simulation and interpolation: Monte Carlo evidence," Staff Report 181, Federal Reserve Bank of Minneapolis.
    5. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
    6. Cunha, Flavio & Heckman, James J. & Navarro, Salvador, 2004. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," IZA Discussion Papers 1437, Institute for the Study of Labor (IZA).
    7. Andriy Norets, 2009. "Inference in Dynamic Discrete Choice Models With Serially orrelated Unobserved State Variables," Econometrica, Econometric Society, vol. 77(5), pages 1665-1682, 09.
    8. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-120, December.
    9. Derek Neal, 1998. "The Complexity of Job Mobility Among Young Men," NBER Working Papers 6662, National Bureau of Economic Research, Inc.
    10. Arcidiacono, Peter, 2004. "Ability sorting and the returns to college major," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 343-375.
    11. 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, pages 352.
    12. Robert J. Willis & Sherwin Rosen, 1978. "Education and Self-Selection," NBER Working Papers 0249, National Bureau of Economic Research, Inc.
    13. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
    14. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    15. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    16. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
    17. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
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