Risky Business? The Effect of Majoring in Business on Earnings and Educational Attainment

Abstract

One of the most important decisions a student can make during the course of his or her college career is the choice of major. The field of study a student selects translates directly into the types of skills and knowledge he or she will obtain during college, and it can influence the type of career chosen after postsecondary education ends. Business is one of the most popular majors in the US, accounting for 19% of all college degrees granted. We study the impact of choosing a business major using a regression discontinuity design that exploits GPA cutoffs for switching majors in some Texas universities. Even though nearly 60% of marginal business majors would have majored in a STEM field otherwise, we find large and statistically significant increases in earnings of 80% to 130% 12+ years after college entry, driven mainly by women. These are considerably larger than OLS estimates that condition on a rich set of demographic, high school achievement, and high school fixed-effects controls, which is consistent with students choosing majors based on comparative advantage. We do not find statistically significant effects of majoring in business on educational outcomes, except for positive effects on male 6-year graduation rates.2 the difficulties faced by prior research. Our focus is on the return to majoring in business, which is the single most popular field of study in the United States: In 2014, 19.2% of all bachelor degrees awarded in the United States were in business and management. In contrast, 11.5% of degrees were in liberal arts or humanities, 13.9% were in the social sciences, 5.3% were in education, 10.6% were in health professions, and 17.0% were in science, technology, engineering and math (STEM) fields. 4 The popularity of the business major is not a new phenomenon.The demand for this major has been consistently high over the past several decades. Business majors tend to focus on providing students with skills and knowledge that currently are needed in the labor market, including finance, accounting, management and computer skills. There is much less emphasis on literature, philosophy, the arts, and the principles of scientific reasoning.The specific focus of this major has generated controversy among policymakers and educators.Proponents argue that this more focused training gives students skills that are highly valued by employers in the labor market, which leads to high earnings returns and provides employers the types of workers they need to foster economic growth. Opponents believe that training students more broadly-for example, in the liberal arts tradition-would allow them to be more productive workers in the long run and to be more adaptable to future changes in the demand for specific types of labor. Despite the persistently high demand for the business major and the significant resources states spend on supporting undergraduate business programs, both sides lack credible empirical support for their claims that is based on robust causal methods.The main contribution of this paper is to fill ...

The impact of undergraduate degrees on early-career earnings

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Institution, Major, and Firm-Specific Premia: Evidence from Administrative Data

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