Degree Choices

SCIENCE DEGREES ARE MOST ‘RECESSION PROOF’

A degree in a science subject offers the best protection against unemployment during times of economic uncertainty. That is one of many findings of a detailed study of the income and degree choices of more than 6,000 young American adults.

The research by Jacopo Mazza, presented at the Royal Economic Society’s 2013 annual conference finds that:

  • Degrees in the sciences and, to a lesser extent, the social sciences offer better job security in times of economic uncertainty, especially compared with degrees in the humanities.
  • A 10% increase in economic uncertainty causes a 19% drop in the probability that young people will choose a degree in social sciences.
  • But economic uncertainty does not affect the number of people who study humanities. The author suggests this may be because humanities students are typically from wealthier and better educated families who are able to offer informal ‘insurance’ by supporting them if they face unemployment.

Understanding the factors affecting degree choice and the relative merits of degree types is particularly relevant given the combination in many countries of rising student numbers and record youth unemployment – despite shortages of graduates in certain areas.

The study argues that a government keen to encourage students to study riskier degrees might consider the public provision of insurance for times when they are out of work. The author says:

‘My findings could offer justification for some form of publicly provided insurance, such as conditional student loans repayment. This form of risk sharing could foster social mobility by allowing students from economically disadvantaged families to feel less constrained in the choice of university degree’.

The research also notes the importance of providing young people with the information to make the right choice for them. The author adds.

‘If future risk is an important factor in a student’s decision, reliable information on which degree type offers better protection against economic fluctuations is of primary importance.’

More…

This research seeks the answer to a crucial issue related to educational choices. It asks if, and to what extent, concerns about uncertainty about future wages affect choice of college major and which type of college degrees offer better protection against macroeconomic shocks. It does so by analysing information on income, college choices and several other demographics on more than 6,000 young adult Americans.

As expected, higher risk discourages selection of a particular type of college major, while higher returns have the opposite effect. For example, a 10% increase in uncertainty causes a 19% drop in the probability of selecting a degree in social sciences. The only exceptions to this finding are graduates in humanities who are unresponsive to any economic consideration when selecting their type of degree. This particular group of students tends to come from wealthier and better educated families and could be using their family assets as indirect insurance against bad labour market outcomes.

Risk associated with macroeconomic conditions increased sensibly over the last 20 years for all types of college majors. But degrees in sciences and, to a lesser extent, social sciences offer a better protection against labour market volatility, especially compared with degrees in humanities.

Understanding to what extent uncertainty influences individual choices is of direct interest both for policy-makers and high school students. This is especially relevant in the current economic climate and in view of the increasing costs of higher education.

The reason why the issue should concern policy-makers is labour market efficiency. Since insurance coverage for this type of uncertainty is not offered on the market, perceived risk might result in a lack of labour force supply for some particular professions.

A government willing to create a more efficient labour market might consider the public provision of insurance coverage for those ready to undertake riskier educational paths. Furthermore, if these riskier human capital investments lead to higher returns and if poorer individuals avoid them due to the lack of financial buffers, intergenerational and social mobility might be severely reduced.

College education has a lasting effect on one's economic and social success. Students therefore need to posses all possible information about dangers and opportunities that each college major entails. If future risk is an important factor in their decision, reliable information on which major type offers better protection against economic fluctuations is of primary importance.

The findings of this study could offer justification for some form of publicly provided insurance, such as conditional student loans repayment. This form of risk sharing could foster social mobility by allowing students from economically disadvantaged families to feel less constrained in the choice of college major and more inclined to follow their talents.

ENDS


Contact:

Jacopo Mazza: jacopo.mazza@manchester.ac.uk

RES media consultant Romesh Vaitilingam:
+44 (0) 7768 661095
romesh@vaitilingam.com
@econromesh

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