Effects of an economic recession on post-secondary field of study

When selecting a college major, students usually take many factors into consideration, reflecting the costs and benefits associated with a college education in general and the given field of study in particular, including the prospects for finding employment and the expected earnings stream. Economic downturns may shift the probability of finding work in particular areas and may lead current and prospective students to shift their information set regarding the earnings potential for a given field of study.  This project sheds light on this relationship and assesses how macroeconomic and labor market conditions impact college students’ choice of a major. The estimates from this study provide valuable inputs towards understanding how students make choices regarding field of study, and how these choices may be impacted over the economic cycle.  While prior studies have investigated occupational choice, this study is one of the first to consider the effects of the recent economic downturn and the first to link this downturn to students’ post-secondary choice of a field of study.

The analyses are based on the U.S. Census Bureau’s nationally representative American Community Surveys spanning the period of the Great Recession.  Local labor market conditions are proxied by the state’s unemployment rate.  Fixed-effects methods are employed to relate how the choice of major, across key periods in a college student’s undergraduate tenure, across various typologies (for instance, business vs. arts & science; natural sciences versus other arts & social sciences; etc.) is affected by the state’s labor market.  These models also control for a host of other relevant variables, including socio-economic and demographic factors relating to the individual as well as other state-specific factors and trends. 

Estimates suggest that macroeconomic conditions play an important role in students’ choice of a field of study, which indicates some revision of priors regarding employment and earnings trajectory as a result of current economic conditions.  Specifically, results suggest that an economic downturn shifts more students towards financially-stable majors (classified by the Bureau of Labor Statistics) and towards natural sciences and engineering, and fewer students towards other arts and sciences majors.  These responses exhibit considerable heterogeneity across gender and race.  Understanding how various factors affect educational decisions is policy-relevant. Recessions may cause students to re-evaluate the costs/benefits of choosing a particular field of study, which can have long-term implications for economic factor such as job stability and income trajectory as well as non-economic domains such as health.