The choice of major: effects on wages and an evaluatio of the no-switching majors rule

Daniel dos Santos

No 09_06, Working Papers from Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto

Abstract: I estimate a dynamic discrete choice model of the decision of going to college in a speci?c major. Dynamics in the model result from a correlated bayesian learning structure about individual comparative advantages in the labor mar- ket, which allows me to decompose the income gains associated to college ed- ucation into three components: (i) human capital accumulation, (ii) access to specialized segments of the labor market, and (iii) better exploration of com- parative advantages due to the use of information acquired in college. The estimation suggests scienti?c majors are especially bene?tted from (ii) whereas in non-scienti?c occupations the e¤ect (i) dominates. I then use the estimated structural parameters to simulate the impact of restrictions to changes of major during college, a policy commonly found outside North America. The results suggest that if American students were not allowed to switch majors, they would have welfare losses equivalent to their ?rst year of labor income after college.

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