Munich Personal RePEc Archive

How Risky Is the Choice of a University Major?

Kässi, Otto (2014): How Risky Is the Choice of a University Major?

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This paper estimates the monetary returns to different university majors and the risks related to them. The residuals from a Mincer-type income regression are decomposed into unobserved heterogeneity (known to the individual when making her education choice) and risk (unknown to the individual). The risk estimates are corrected for selection by applying the selection correction model of Lee (1983) and an instrument based on the local supply of education in different majors. The differences in risks between different majors are found to be mostly statistically insignificant but differences in returns to majors are larger and significant. Both, income uncertainty and mean returns are found to be larger for men than for women.

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