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Simon Says: Why economics majors earn more money

Dr. Simon Medcalfe, AU Economics Professor

The average starting salary for an economics major is $65,000 according to the National Association of Colleges and Employers. By contrast, sociology majors average $55,000 and political science majors average $58,270. The salary for economic majors is also higher than in any other business discipline.

However, just looking at average salaries may be misleading and returns vary from student to student and college to college. Average economics salaries are also skewed because economics is the most popular major at every Ivy League school except the University of Pennsylvania. So, some salary premium is due to the elite college, not the major.

A second problem is that students who choose economics may be different in some ways than those that do not choose economics and it is those differences that ensure higher earnings rather than the major itself.

A recent paper (https://www.aeaweb.org/articles?id=10.1257/app.20200447) by Zachary Bleemer and Aashish Mehta tried to overcome these issues by looking at economics majors at just one university, the University of California, Santa Cruz. They were also helped by the university’s requiring students to pass their first two economic courses with a GPA greater than 2.8 to continue to study economics as a major.

This allowed the researchers to look at similar students, all motivated to study economics, but some just made it into the major, and some just missed out. They found that those students who just made the GPA cut-off earned about $22,000 more than students who just missed the cut-off and majored in another subject.

Why do economics majors command such a salary premium? The researchers suggest that the economics students benefited from different education, including 12 additional courses in dismal science. More importantly, there was a large difference in the number of quantitative courses that economic students took compared to other majors.

So, should all students be rushing to take economics? Or computer science or engineering which have even higher starting salaries?

Students who are not quantitatively inclined would do better finding majors that fit their skill set and career goals. A student who really wants to be a sociologist will be a better sociologist and earn more, than if they train as an economist just because they think they will earn more.

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