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Investment over the Business Cycle: Insights from College Major Choice

Author

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  • Blom, Erica

    (affiliation not available)

  • Cadena, Brian C.

    (University of Colorado, Boulder)

  • Keys, Benjamin J.

    (Harris School, University of Chicago)

Abstract

This paper examines the relationship between individuals' personal exposure to economic conditions and their investment choices in the context of human capital. Focusing on bachelor's degree recipients, we find that birth cohorts exposed to higher unemployment rates during typical schooling years select majors that earn higher wages, that have better employment prospects, and that more often lead to work in a related field. Much of this switching behavior can be considered a rational response to differences in particular majors' labor market prospects during a recession. However, higher unemployment leads to other meaningful changes in the distribution of majors. Conditional on changes in lifetime expected earnings, recessions encourage women to enter male-dominated fields, and students of both genders pursue more difficult majors, such as STEM fields. These findings imply that the economic environment changes how students select majors, possibly by encouraging them to consider a broader range of possible degree fields. Finally, in the absence of this compensating behavior, we estimate that the average estimated costs of graduating in a recession would be roughly ten percent larger.

Suggested Citation

  • Blom, Erica & Cadena, Brian C. & Keys, Benjamin J., 2015. "Investment over the Business Cycle: Insights from College Major Choice," IZA Discussion Papers 9167, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9167
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    Cited by:

    1. Alena Bičáková & Guido Matias Cortes & Jacopo Mazza, 2021. "Caught in the Cycle: Economic Conditions at Enrolment and Labour Market Outcomes of College Graduates," Economic Journal, Royal Economic Society, vol. 131(638), pages 2383-2412.
    2. Michael R. Ransom & Aaron Phipps, 2017. "The Changing Occupational Distribution by College Major," Research in Labor Economics, in: Solomon W. Polachek & Konstantinos Pouliakas & Giovanni Russo & Konstantinos Tatsiramos (ed.), Skill Mismatch in Labor Markets, volume 45, pages 129-171, Emerald Publishing Ltd.
    3. Dillender, Marcus & Friedson, Andrew & Gian, Cong & Simon, Kosali, 2019. "Does the healthcare educational market respond to short-run local demand?," Economics of Education Review, Elsevier, vol. 73(C).
    4. Graves, Jennifer. & Kuehn, Zoë., 2018. "Specializing in growing sectors: Wage returns and gender differences," Working Papers in Economic Theory 2018/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    5. Beiler, Hendrik, 2017. "Do you dare? The effect of economic conditions on entrepreneurship among college graduates," Labour Economics, Elsevier, vol. 47(C), pages 64-74.
    6. 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.
    7. Han, Luyi & Winters, John V., 2020. "Industry Fluctuations and College Major Choices: Evidence from an Energy Boom and Bust," Economics of Education Review, Elsevier, vol. 77(C).
    8. Graves, Jennifer & Kuehn, Zoë, 2021. "Specializing in growing sectors: Wage returns and gender differences," Labour Economics, Elsevier, vol. 70(C).
    9. Ersoy, Fulya Y., 2020. "The effects of the great recession on college majors," Economics of Education Review, Elsevier, vol. 77(C).
    10. Jean-Denis Garon & Catherine Haeck & Simon Bourassa-Viau, 2020. "Going Back to School Takes Time: Evidence from a Negative Trade Shock," Working Papers 20-01, Research Group on Human Capital, University of Quebec in Montreal's School of Management.
    11. Leighton, Margaret & Speer, Jamin D., 2020. "Labor market returns to college major specificity," European Economic Review, Elsevier, vol. 128(C).
    12. Franziska Hampf & Marc Piopiunik & Simon Wiederhold, 2020. "The Effects of Graduating from High School in a Recession: College Investments, Skill Formation, and Labor-Market Outcomes," CESifo Working Paper Series 8252, CESifo.
    13. Hendrik Beiler, 2016. "Do You Dare? The Effect of Economic Conditions on Entrepreneurship among College Graduates," Working Paper Series in Economics 88, University of Cologne, Department of Economics.
    14. Joseph G. Altonji & Peter Arcidiacono & Arnaud Maurel, 2015. "The Analysis of Field Choice in College and Graduate School: Determinants and Wage Effects," NBER Working Papers 21655, National Bureau of Economic Research, Inc.
    15. Andrew Foote & Michel Grosz, 2020. "The Effect of Local Labor Market Downturns on Postsecondary Enrollment and Program Choice," Education Finance and Policy, MIT Press, vol. 15(4), pages 593-622, Fall.
    16. Bradley, Steve & Migali, Giuseppe, 2019. "The effects of the 2006 tuition fee reform and the Great Recession on university student dropout behaviour in the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 331-356.
    17. 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).
    18. Weinstein, Russell, 2017. "Local Labor Markets and Human Capital Investments," IZA Discussion Papers 10598, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    college major; business cycle; human capital investment; STEM majors; gender differences;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • 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

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