Master's Theses

Date of Award

2013

Document Type

Thesis

Department

Economics and Business

Keywords

Human Capital, Skill-Bigs-Technoligical Change, College Wage Premium

Abstract

"The United States has benefitted from an educated workforce that has been integral to the growth in productivity and innovation in various industries. The education system, which was built to be largely public and egalitarian, allowed individuals of every background to reach their productive potential. Human capital development theorists believe that education is the key to increasing productivity. The skills taught from primary schools, on-the-job training, and institutions of higher education are treated as investments in the individual which lead to higher wages. A degree can also serve as a signaling mechanism to employers, which suggests that an individual may possess specific skills. Higher skills acquired through a college education are compensated with higher wages called the "college wage premium". The college wage premium, calculated by taking the ratio of hourly wages of college educated workers to high school educated workers, is 1.8 (James, 2012). But over the last decade wages for college graduates have been stagnant. Median weekly wages for full-time Bachelor degree holders declined slightly from $1,030 in 2000 to $1,025 in 2009 (Mishel, 2011). This paper examines college education and its effect on wages by analyzing differences between college majors. Datasets for tens of thousands of individuals were retrieved from the Survey of Income and Program Participation which tracks fields of study in college and income. Two cohorts, each representing three-year-long periods, were compared to track the changes in earnings power based on individual field of study within college degree holding groups, and growth in earnings before and after the Great Recession. The results indicate that there is a divergence between degree types and between college majors. This paper suggests that Medicine & Dentistry, Law, Computer Science, and Engineering majors had higher earnings than other groups. During the post-Great Recession period, average wages for Bachelor degree holders 3 remained stagnant, but Computer Science and Engineering degrees saw wage growth. Advanced degrees saw earnings increase, particularly for majors in the Natural Sciences. Meanwhile, Advanced and Bachelor's degrees in Education and Advanced degrees in Business & Management saw their respective earnings decline in the post-Great Recession period. Furthermore, there are premiums as well as penalties for certain major-occupation matches. While earnings of Bachelor degree holders have declined, the overall investment may be worthwhile to pursue: it is much better to have a Bachelor's degree than an Associate's degree or no degree. Section 1 will review some historic background of the relationship between higher education and economic growth. Section 2 is a literature review of prominent economic theories behind higher education and wages, and recent empirical studies of college majors. Section 3 will go over the data and methodology. Section 4 will discuss the results. And Section 5 will conclude the paper with policy recommendations and critical assessments. All figures and tables can be found in the Appendix."

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