Events at CERGE-EI

Gregory Veramendi, Ph.D.

Arizona State University, Tempe, USA

Authors: John Eric Humphries, Juanna Joensen, and Gregory Veramendi

Abstract: Does the college major premium reflect returns to innate abilities, prior skills, or college education? We decompose the college major premium into labor market returns to cognitive and non-cognitive abilities, and skills learned in college. This allows us to quantify how much of the college major premium is due to sorting on abilities and how much is due to the differential labor market value of major-specific skills. We find that sorting on abilities accounts for 10-50% of the college major premium. We also provide novel estimates of complementarities and interaction effects between abilities and skills, since both the returns to abilities and prior skills vary significantly across college majors. We document that 40% of students who enter STEM degrees change major or drop out. We evaluate counterfactual policies to promote STEM degrees, accounting for the the fact that many who start STEM degrees do not finish.