Was Your Degree Worth It? Heterogeneous Returns to Higher Education, Fields of Study and Skill Mismatch

Lorenzo Navarini and Dieter Verhaest

No 26196, RFBerlin Discussion Paper Series from ROCKWOOL Foundation Berlin (RFBerlin)

Abstract: Returns to higher education vary substantially between and within fields of study. This paper studies whether occupational sorting at labor market entry contributes to this heterogeneity in early-career realized returns. We estimate a generalized sequential Roy model of yearly higher education enrollment choices, skill mismatch at entry, and subsequent labor market outcomes. Identification combines persistent latent heterogeneity with exclusion restrictions based on distance to programs and residual variation in graduation timing. Individuals with a higher probability of enrolling in higher education obtain higher returns, but also experience the largest losses in realized returns when they start in mismatched occupations. In counterfactual decompositions, entry mismatch accounts for a substantial share of low, and in some cases negative, early-career realized wage returns.

Keywords: Returns to higher education; fields of study; skill mismatch; occupational sorting; heterogeneous returns. (search for similar items in EconPapers)
JEL-codes: I23 I26 J24 (search for similar items in EconPapers)
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:crm:wpaper:26196

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