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Student Choice of Undergraduate Major Field of Study and Private Internal Rates of Return

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Abstract

Examination of the relationship between student choice of undergraduate field of study and internal rates of return (IRR) in universities and colleges in the United States. Methodology; Results of the study; Impact of shifts in academic majors on IRR. (Abstract copyright EBSCO.)

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... 4 How often has human capital theory been applied to the topic of college major? Quite a bit of work published in the 1970s and 1980s argued that human capital theory was indeed applicable to American undergraduates (Koch (1972), 1 To illustrate, recently we conducted a JSTOR search of economics journals (26 of them, three of which go back to the late 19th century), gathering all articles with "college major" in their title. The search uncovered a grand total of five articles, four of which explore the degree to which sex differences in college major can help to explain "the gender gap" in earnings. ...
... In this case, we will assume that the choice of major is determined by the potential student first comparing the differences, across majors, between the expected present values and the respective reservation prices, and then choosing the major with the maximum difference. 16 For example, consider the following two differences: ...
... But before we can define this subset, we need to introduce another term. Recall 16 If the reservation prices exceed the respective expected present values, then neither major is chosen. 17 For the moment we will ignore the case when the differences are the same. ...
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We assess the likelihood that earnings premiums influence college students' behavior as human capital theory suggests. We highlight several key observable patterns of earnings by age, sex, and for numerous college majors in recent decades, and propose a model of heterogeneous human capital to explain the data. Next, we formulate and test the hypothesis that greater expected average annual earnings by college major will induce greater proportions of college students to select higher-paying majors. The evidence implies that - at least for the observed range of earnings premiums - monetary incentives are insufficient to fully explain behavior.
... The findings revealed that the choice of major is a result of comprehensive factors. When deciding on a major, one may consider the expected rate of return on educational investment --the economic costs of the major, the possibility of completing a certain college program, and the long-term returns, which have different degrees of influence on students from different family SES [4][5]. Personality, innate ability, personal preference, and academic preparation are key factors deciding students' confidence and the valuation of risks [1,2,6]. ...
... The expected rate of return on educational investment, with regard to the expectations of the costs and benefits, is one of the factors influencing students' choice of college majors, stemming from the thin model's maximizing utility, and influenced by secondary effect [4,5,17]. ...
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This study aimed at exploring the main determinants of college major choice in China, and how factors stemming from the rational choice framework contribute to the final decision. Based on China’s Gaokao policy, this paper evaluated the fitness of rational choice theory for Chinese students choosing college majors and analyzed the decision mechanisms adopting primary and secondary effects, Coleman’s model, and the thin and thick models. Specifically, the choice of a college major is a result generated by the balance of risks, costs, and benefits, influenced by preferences and values, and shaped by certain macro-level conditions. Certain social influences have been emphasized in Chinese society.
... For example, the literature on student choice, grounded in the concepts such as rational decisionmaking or bounded rationality (for a higher education review, see DesJardins and Toutkoushian 2005), may shed more nuanced light on how students differently approach higher education with differing backgrounds, preferences, resources and limitations (e.g. Koch 1972;Hearn and Longanecker 1985;Butt, 2017). In this light, there has been a long-established literature looking into a range of choices made by students with regard to, for example, the desired/acquired level of education (e.g. ...
... This omission is unwise especially given the early evidence indicating differences in student choice across disciplines (e.g . Feather 1970;Koch 1972). Similarly, we hear little from science teachers or scholars regarding their voices or experiences regarding the increasingly marketised working contexts especially with students. ...
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This paper aims to inspire an interdisciplinary dialogue on framing students as customers in higher education, by reviewing some under-explored conceptual issues and implications in the existing literature especially concerning presently underrepresented disciplines. It sets out a different case for studying a student-consumer metaphor to that which has dominated the debate so far, and thus a new research agenda calling for interdisciplinary research. It cautions future research on the necessity to reflect on the particular context and nature of higher education before conceptualizing students as customers, with particular attention to be paid to wider implications and consequences of changing higher education context to our society and future.
... Only very limited research has been conducted on IRR across college majors. Koch (1972) used cost data from Illinois State University for 1968 to 1969 and found that mathematics and economics were associated with the highest IRRs, while education, fine arts, and history were found to have the lowest IRRs. More recently, Lobo and Burke-Smalley (2018) used aggregate data on lifecycle earnings from the Hamilton Project at the Brookings Institution to estimate net present value and IRRs for various majors in the United States. ...
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Using data collected from more than 5.8 million high school and college graduates ages 18 to 65 years who participated in the American Community Survey between 2009 and 2021, the authors estimate the internal rates of return (IRRs) for individuals with college degrees in 10 broad majors compared with high school graduates. The analysis shows significant differences in the age-earnings trajectories and IRRs across college majors. Furthermore, quantile regression analyses show that IRR is generally higher at the high end of the earnings distribution compared with the low end. Finally, the authors observed a slight decrease in IRR during the study period, which is consistent with the flattening and even decline in college wage premiums following the 2008 Great Recession.
... Many scholars have also paid attention to differences in academic majors and disciplines in terms of educational returns in face-to-face education. As early as the 1970s, Koch (1972) ...
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Few empirical studies have analyzed the return to distance higher education in different academic disciplines. This study used quantitative methods, data from a nationwide survey, and Mincerian earnings function to analyze the return to distance higher education among different disciplines in China’s labor market. Results were compared with the return to face-to-face higher education and showed that the returns to face-to-face higher education were higher than those to distance higher education. Returns to the disciplines of economics and management were at a high level in both face-to-face and distance education; returns to the disciplines of literature, as well as education and law, were at a low level in both face-to-face and distance education. The returns to the disciplines of science and engineering were higher in face-to-face education than in distance education. This paper proposes several recommendations. Adults who do not have higher education degrees should invest in distance higher education to obtain considerable monetary returns, particularly in the disciplines with higher returns such as management and economics. China’s distance education institutions should improve the quality of teaching in science and engineering education and find ways to provide high-quality experimental teaching practices. At the same time, they should scale back on instruction of literature, as well as education and law.
... Demand in the labor market (Firoito and Dauffenbach 1982), pre-college ability (Turner and Bowen 1999) and socioeconomic background (Leppel et al 2001, Simpson 2003, and Strasser et al 2002, as well as the ease of obtaining a high grade point average (Cohen 2005) are among other incentives linked to the individual and aggregate choice of college major. Freeman (1971), Koch (1972), Berger (1988), Eide and Waehrer (1998) and Montmarquette, Cannings and Mahseredjian (2002) have all found empirical evidence that suggests that increases in the expected earnings of a major relative to expected earnings of other majors, enhances the utility of that major and consequently increases the probability that individuals will choose that major relative to others. ...
... In other papers Koch (1972) and Grogger and Eide (1995) find some evidence that students respond to market signals regarding what to major in. However, the long term persistence of higher wages for certain fields of study such as engineering -see e.g. ...
... A student's choice of a collegiate major can be influenced by numerous factors such as parents, teachers, exposure to subjects in secondary education, curriculum offerings (Estaville, Brown, and Caldwell 2006), as well as practical returns such as employability (Koch 1972;Cebula and Lopes 1982;Montmarquette, Cannings, and Mahseredjian 2002). The leading factors that deterred students from entering a geosciences program (among university students from outside the geosciences program, transfer students, and high school students in this work) were ignorance of the discipline and a lack of understanding about career options after graduation. ...
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An innovative vertical integration model for recruiting to GIS education was introduced and tested following four driving forces: curriculum development, GIS presentations, institutional collaboration, and faculty training. Curriculum development was a useful approach to recruitment, student credit hour generation, and retention-rate improvement. Recruitment presentations increased GIS awareness at all levels. The intensive teacher training combined with GIS class-development through institutional collaboration was effective in enhancing GIS education at high schools and community colleges. The vertical integration model is an effective means of recruitment for GIS education and could be used by programs confronted with problems in recruitment.
... On peut mentionner aussi les travaux ou thèses de Wilkinson (1966), Weiss (1971), Koch (1972) et Freeman (1971 sur l'influence du revenu associé à une discipline. Les travaux du premier sont beaucoup trop partiels ; ceux du second se révèlent infructueux ; ceux du troisième se révèlent fragiles et reposent sur une mauvaise spécification (voir Ross (1975) et Bell (1975). ...
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In their choice of a field of study, students are assumed by the "neoclassical" theory to be rational, well informed, flexible, and to react to changes in monetary variables. Data from a survey are used to show that students are economic men and women only in a weak sense: 1) they appear to be more interested in job availabilities and other job characteristics than in earnings associated with a particular field of study; 2) if their information can be said to be good with respect to forgone earnings and starting earnings of their chosen occupation such is not the case with respect to future earnings; 3) however, their expected rates of return on their studies seem plausible and show all the usual properties of rates of return derived from more conventional computations.
... Studies includeBlakemore and Low (1984),Boudarbat (2008),Fiorito and Dauffenbach (1982),Koch (1972) andPolachek (1978). ...
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We utilize the 2000 cohort of university graduates from the National Graduate Survey (NGS) to estimate the extent to which the choice of field of study is influenced by expected returns to those fields of study. The expected returns are based on earnings equations estimated from the earlier 1990 NGS cohort for the years 1992 and 1995 -- years that are around the time when the 2000 cohort would be applying to university and forming expectations of their expected returns by field of study. We estimate those expected returns using conventional OLS earnings equations as well as IV estimates to account for the potential endogeneity of the returns by field of study since selection effects may bias the expected returns. Our IV estimates utilize measures of skill-biased technological change as instruments. Overall, our results suggest that prospective students do choose fields of study in part at least on the basis of earnings they can expect to receive in those fields. Furthermore, earnings expectations formed around the time they are applying are more influential than earnings expectations based on years further away from that time, although both generally have an impact on the choice of field of study.
... Even at the same educational level there exist different fields of study and of different programmes as for example there exist PhD programs both in political science and biology. In practice, the heterogeneity in fields of study results in different economic returns from different fields of study (Koch, 1972 ). Similarly, on-thejob training includes very different training programmes and healthcare includes a variety of medical treatments. ...
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By influencing her specific labor occupation choice major choices greatly condition the allocation of an individual’s time. Previous economic analysis on the subject has emphasized monetary considerations affecting such a decision, but has been relatively less incisive regarding non pecuniary variables, which are precisely those that psychologists consider as relatively relevant. This paper shows that giving a greater role to non pecuniary variables may vary and even contradict some previous considerations. In fact, when the non-pecuniary variable enters in the utility function it is shown that if abilities are absolute (being proficient in major i implies being proficient in all others), then average ability will not be affected; whereas, in the relative case, the rise in average ability may be indistinguishable.
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