Labor market returns to college major specificity

Abstract

This paper defines and measures college major specificity and estimates its labor market return over a worker’s life cycle. After reviewing other measures which have been used to measure specialization, we propose a novel approach grounded in human capital theory: a Gini coefficient based on the transferability of skills across occupations. We calculate and compare representative measures using data from the American Community Survey and the Baccalaureate and Beyond. We then use these measures to estimate the return to specialized higher education. Using our new measure, we find that the most "specific" majors clearly pay off the most over time. The initial annual earnings premium for the most specific majors is 8%, all of which comes through wages and not hours worked. This premium declines with age but is positive at most ages. We then apply our measure to the question of entrepreneurs and managers. Despite enjoying higher average earnings, graduates from specific majors are 20-25% less likely than average majors to become entrepreneurs or hold managerial positions, while the most general majors lead to the highest rates of entrepreneurship. This finding lends support to a prominent hypothesis from the literature on managers and entrepreneurs.