We economics professors love our bragging rights. At Ball State, we advertise our economics major as “the major that pays.” Numerous studies back this up. Undergraduates majoring in economics earn more than those majoring in most other fields of study, the exception being engineering majors. Economics majors consistently earn more than other business school majors.
We like to think our students earn more because of the great wisdom and insights we economics professors impart. We probably should not get too proud because there is an alternative explanation. Smarter students major in economics, and smarter people typically earn higher incomes. Alas, to our chagrin, maybe we don’t do that much per se. Employers might view graduating in economics as a signal that a potential employee will be more productive.
A recent study by Zachary Bleemer and Aashish Mehta suggests there might be something more than signaling. At the University of California at Santa Cruz, students must earn more than a 2.8 grade point average in their two introductory economics classes to become economics majors. Bleemer and Mehta collected earnings data, several years after graduation, for both economics majors and non-economics majors who had taken these two classes.
To no surprise, people who had higher grades in introductory economics classes earned more. But Bleemer and Mehta also found that students who barely met the 2.8-grade-point threshold and majored in economics earned 46% more than those who fell just below the threshold and majored in something else. Forty-six percent higher earnings represented $22,000 extra in early-career annual wages. The results were similar for males and females and appear to be larger for underrepresented minority students. In addition, the wage premium seems to grow as workers age.
Bleemer and Mehta find that about half of the income premium is because economics graduates are more likely to be employed in higher-paying economics-related industries such as finance, insurance, real estate and accounting. The other half of the wage premium can plausibly be attributed to the great insights and wisdom we economics professors impart in our upper-division classes. But maybe not.
Humility is an essential virtue in making academic assertions. Bleemer’s and Mehta’s study is at one university, and other unspecified factors might be relevant. However, we will still call our major the major that pays. And still tell our readers they should encourage their college students to major in economics.•
Bohanon and Horowitz are professors of economics at Ball State University. Send comments to firstname.lastname@example.org.