The consequences of economic fluctuations are large and long-lasting, and can have an especially strong influence on investment choices. A new study by Erica Blom, Brian C. Cadena, and Benjamin J. Keys provides new insights into how personal exposure to the business cycle affects the choice of college major, a key investment in human capital.
The authors use data from more than 50 cohorts of U.S. college graduates in the American Community Survey (ACS) to estimate how responsive college students are in their choice of major. The results show that, when unemployment is high, students choose majors that are higher-paid, more math-heavy and challenging, suggesting that students consider college as an “investment” more than as “consumption” when times are bad.
Much of these changes in major choices can be attributed to differences in particular majors’ labor market prospects, as some majors are hurt more in recessions than others. However, the authors also show other meaningful changes in the distribution of majors. Notably, women are more responsive than men, and women move away from traditionally female-dominated majors like sociology and education during recessions, and towards math-intensive majors (like business, engineering, etc.). The findings suggest that the economic environment changes how students select majors, possibly by encouraging them to consider a broader range of possible degree fields.
In the area of STEM education, the authors identify a latent supply of college students with sufficient ability to complete STEM fields. A rise in the unemployment rate encourages more students to pursue STEM majors, which implies that a substantial fraction of each cohort has sufficient preparation for STEM fields, and suggests room for potential policy intervention.
Finally, while an extensive literature has documented significant costs to graduating in a recession, the authors note that the impact of graduating in a recession would be even more negative if students were unable to respond by picking different majors. By leaving fields that are hurt most during recessions and entering more “recession-proof” fields like engineering and nursing, students are able to partially offset the costs of graduating in a recession. The authors estimate that, without this compensatory behavior, the damaging effects of graduating in a recession would be roughly 10 percent larger.
- Read also an article about this paper in Slate magazine.