Investment Over the Business Cycle: Insights from College Major Choice

57 Pages Posted: 4 Sep 2015

See all articles by Erica Blom

Erica Blom

Edgeworth Economics L.L.C.

Brian C. Cadena

University of Colorado at Boulder - Department of Economics

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

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.

Keywords: college major, business cycle, human capital investment, STEM majors, gender differences

JEL Classification: E32, I23, J22, J24

Suggested Citation

Blom, Erica and Cadena, Brian C. and Keys, Benjamin J., Investment Over the Business Cycle: Insights from College Major Choice. IZA Discussion Paper No. 9167, Available at SSRN: https://ssrn.com/abstract=2655116 or http://dx.doi.org/10.2139/ssrn.2655116

Erica Blom

Edgeworth Economics L.L.C.

333 Bush St.
Suite 1450
San Francisco, CA 94104
United States

Brian C. Cadena (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
3034927908 (Phone)

HOME PAGE: http://spot.colorado.edu/~cadenab/Home.html

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

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