The return to studying economics is fairly high

Selection bias may confound the identification of field-specific returns to higher education. This study investigates the wage return to studying economics by leveraging a policy that prevented students with low introductory grades from declaring the major. Regression discontinuity estimates show that policy-complying economics majors — who appear representative on observables — earned $22,000 (58%) higher annual early-career wages than they would have with their second-choice majors, despite otherwise-unchanged educational investment and attainment. Cross-industry wage variation explains half of the return, with economics majors channeled towards high-wage economics-related industries. Differences between institution-specific or nationally-representative average wages by major well-approximate the estimated causal return.

That is from a new paper by Zachary Bleemer and Aashish Mehta, via the excellent Kevin Lewis.

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Similar to my lament in response to the school spillover post, I'm really glad I studied economics: Otherwise, I'd be even poorer! :-)

The paper is a fine read but the title is misleading. It would better read:

"The return to getting a job in the finance sector is fairly high"

Econ is neither a necessary nor a sufficient condition to obtaining employment in that line of work.

It doesn't have to be either, just helpful.

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I show this and other related evidence to my principles class. I worked out a deal with my department chair that for X number of students that declare an econ major after taking my class, I get a $Y increase in my conference travel budget.

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I regret not considering a major in economics when I was younger, but engineering is fun too. The great thing about economics is that as long as you can get the underlying math theory it actually isn't that hard to teach yourself out of relatively cheap used textbooks and lectures put online from places like here: https://www.youtube.com/channel/UC54kFKpGsjpyAgNSce-mR6Q/playlists and here: https://www.youtube.com/channel/UCUnSObytBXWhuPeXuYNpf6w/playlists .

The top results of economics are fairly obvious and don't require formal study but if needed can be learned in a weekend (supply/demand, diminishing returns, elasticity, barriers to entry, perfect competition, monopoly, externality, money supply, interest rates, etc). The more mathematical aspects (ie. econometrics) can be learned fairly easily from an engineering background but going the other way around from econ to engineering is much harder.

Mostly agreed. The real skill economists are hired for is econometrics. Think of economics as computer-science-lite with an introduction to data science. I don't mean to dismiss it when I say that. In today's economy that's a very valuable combination.

The ability to understand causal inference and digesting the broader principles of the social sciences is not to be underestimated in their importance for decision making

If you think economics can teach that, sure it would be helpful.

But I'll pay for the ability to code well in R and understand regression.

Perhaps my comments are more true of the PhD level. Undergrad economics is more of a mixed bag. If you are considering economics as an undergraduate major, make sure it is as quantitative and data oriented as possible.

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+1

Economics is a hybrid major - good math & data science paired with a solid foundation of logical thinking.

Not as strong on the math/data as engineering/CS, not as strong on the logic as law.

That in my book makes it an excellent degree for a flexible career. If you aren't 100% sure what you want to do growing up I think there's no better major.

As an economics undergrad I feel it prepared me very well for the real world. I began my career in finance, migrated to computer science, and eventually ended up in management. At every stop the skills I learned in undergraduate economics were helpful.

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The sad thing is that the big advantage of econ math at the graduate level is in formal mathematical tools that are probably unnecessary but are more rigorous than doing even an MA Physics degree at a top 3 department. However, econometrics and statistical intuition are very important and a benefit of moder econ training. I have met high level professors from medicine, biology, and psychology (top ten departments) who have no understanding or intuition about statistics and just hand off their experiments to statisticians. They don't even realize that their published work is full of holes or can be interpreted or extended greatly with better statistical understanding.

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Although in recent years college students' majors as an explanation for their later incomes has been wildly over-emphasized (we won't magically raise everyone's wages by $30K by forcing everyone to major in engineering), the choice of major makes some difference, and economics is an excellent subject to major in.

What I'm wondering about is these researchers' observations that half of the gain is due to the industry that the graduates work in. I.e. economics majors are more likely to work in finance, insurance, or real estate (FIRE).

It makes some intuitive sense, but I"m wondering if, just as it's beguiling but misleading to look at the wages of STEM majors compared to non-STEM majors, is it beguiling but misleading to look at the wages of FIRE workers compared to non-FIRE workers?

I can't think of any caveats. But if that's what's going on, doesn't that mean that we can go to the seniors who majored in say German or anthropology and tell them to go get jobs in FIRE, and reduce half of their wage disadvantage? Hmm, maybe that is the caveat that I'm trying to think of.

This is the first time that I've seen the FIRE acronym. I've got Springsteen's "I'm on Fire" running through my head now.

On most of the internet FIRE refers to Financial Independence / Retire Early - FIRE folks who save their money and invest in index trackers so they can quit working at some point before they become senior citizens.

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" misleading to look at the wages of STEM majors compared to non-STEM majors" They are comparing econ to second-choice majors, so like also STEM and similar in aptitude majors.

Right, although one of the reasons why the obsession with STEM is misplaced is that most of the majors in STEM do not make particularly high salaries. The engineers and mathematicians do (although I suspect that a lot of the high wages in math are driven by people who go into finance, actuarial science, or some sort of software engineering), but the science majors do not. So if we focus on salaries (which is a mistake but it's what a lot of policymakers are doing), it's really TEM majors; the S majors are in with the other arts and sciences majors, where econ has a salary advantage. E.g. check out where the chemistry and biology majors rank. And even physics, which is above average, ranks below economics:
https://www.glassdoor.com/blog/50-highest-paying-college-majors/

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well ....

"for people without connections" the return to studying economics is fairly high. studying economics enables you to signal, in your first years in the job market, that the actual details of what goes on every day when hardworking people make life less difficult for lazy people has not gone over your head, and that signaling ability is, in certain situations, remunerative. Not very remunerative, but much more than minimum wage remunerative.

for people with connections, well, "understanding economics" has a huge return, but "studying economics" is about as useful as studying why your hotel that charges a thousand a night is better than a hotel that charges 100 bucks a night. why would you "study economics" instead of studying the millions of other things that are important, and which people who know you have connections will pay to study and work on? you will notice, very very few rich people "study hotel management" (a la the Cornell that isn't really the Ivy League Cornell) or "event planning" but many of them, I have heard, spend an awful lot of time at nice hotels and pleasant events.

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Has anyone considered the possibility that economics majors might have a greater propensity to chase salary rather than job satisfaction? In other words, maybe econ graduates are just plain greedy.

When I was an econ major in the 70s most in my classes were pinko commies!

Yeah, but what are those boomers doing now? Traded in the hammer & sickle for golf clubs & 2nd homes (but kept the guilt)?

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And thus they chase a degree where 'return to studying is fairly high'? That would be proving the paper's point.

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I graduated with a degree in economics from a small state college. I've worked in risk management in a bank. Recently, I've gotten into a product owner career path which seems to be lucrative. I was laid off due to COVID from a tech start up, but managed to land a job making 94k + 25% yearly bonus for an industry leader in the finance industry. I find that having an economics background has helped me immensely in my product owner career.

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Learn finance or business administration. More lucrative, less nerdy.

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So they compared people who got good marks in the introductory course and people who got bad marks. Gee, I wonder how much the the first group has more "smarts" than the second (at least some kind of smarts).

It's a regression discontinuity design. Unlikely that the marginal differences in grades in one course around specifically this threshold could plausibly explain the earnings differential observed except for through the major

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