Want to get rich? Major in economics
- Getting a college degree is not adequate to maximize one’s potential earnings; choice of major also matters.
- Students who major in economics often out-earn non-economics majors.
- The income gap can be large enough that it is roughly similar to the earnings gap between those who go to college and those who do not.
College students often do not think far ahead about the ramifications of their choice of major. But the reality is that what you study in college really does matter. And a new study, published in American Economic Journal: Applied Economics, puts this in very stark terms: Economics majors make a lot more money.
Study money, make money
The authors, Zachary Bleemer and Aashish Mehta, reviewed data on graduates from the University of California-Santa Cruz (UCSC) who took introductory economics courses at some point during their studies. Some of these students went on to major in economics, while others did not. Importantly, UCSC requires that students earn a GPA of at least 2.8 to be allowed to declare economics as their major.
By examining historical data on students enrolled between 2000 and 2014 and comparing it with employment records (for those who remained in the state of California after graduation), the researchers were able to determine the financial benefit of majoring in economics.
As shown in the above graph, known as a regression discontinuity (because of the “discontinuous” nature of the data above and below the GPA of 2.8), a sizable jump in salary occurs as a student’s GPA crosses the threshold of 2.8: roughly $8,000.
Crunching the numbers further, the authors estimated that an economics degree, for those who just barely satisfied the GPA requirement, boosted average salary from $37,000 to $59,000 — a difference of $22,000. The results were similar for men ($21,700) and women ($22,600). All of this is in line with data for the entire U.S. in 2018, in which workers aged 40 who held a degree in economics earned a median salary of $90,000, while their peers who studied other social sciences made $65,000. (By comparison, any non-economics major earned a median salary of $66,000.)
The economics gap
The difference in income is large enough that it is roughly similar to the earnings gap between those who go to college and those who do not. So, what explains the gap? About half of it is job related: Economics majors tend to have careers in business, finance, and real estate. Jobs in these professions often pay higher wages. But this effect also is tied to location. Economics majors get an early-career salary boost in California, but this is not true in many other states.
In 2014, then-President Obama remarked that students can make more money if they avoided majoring in something like art history, a comment for which he was widely criticized. He also happened to be correct.
