For business majors, college brand really seems to matter.
A new study by a pair of economists say that business majors who graduate from “selective universities” earn 12% more on average than mid-tier graduates and 18% more than graduates from less-selective colleges with open enrollment.
The economists found that brand didn’t always make a difference, but it appears to matter most when it comes to students who major in business, social science, education, and the humanities. In fact, the increases for students who majored in business were the starkest of all.
BRAND MATTERS MUCH LESS TO EARNINGS IN SCIENCE AND TECH
For fields such as like science, technology, education and math, the economists found, it largely doesn’t matter whether students go to a prestigious, expensive school or a low-priced one—expected earnings turn out the same. And that’s so even after the academics controlled for other factors that might influence post-graduation earnings, such as family income, race/ethnicity, gender, marital status, SAT score, post-graduate degree and age at graduation.
That’s the conclusion of economists Eric R. Eide and Michael J. Hllmer, who looked at what 7,300 college graduates were making ten years after graduation. Eide teaches at Brigham Young University, while Hilmer is at San Diego State University.
“There are many possible explanations for the disparities,” wrote Eide and Hilmer in an article on their analysis published today (Feb. 1) by The Wall Street Journal. “In business, more prestigious schools may offer better alumni networks and other connections with potential employers. In other fields of study, more prestigious schools may offer better peer connections, faculty, university resources and, at least in social science and the humanities, access to better graduate programs. Whatever the reason, parents and students may be justified in looking for a prestigious degree in these majors.”
SKILLS TRUMP PRESTIGE IN SCIENCE FIELDS
The economists say they were expecially surprised that college choice made little difference for STEM-related majors. “We find no statistically significant differences in average earnings for science majors between selective schools and either midtier or less-selective schools,” they wrote. “Likewise, there’s no significant earnings difference between engineering graduates from selective and less-selective colleges, and only a marginally significant difference between selective and midtier colleges.”
Eide and Hilmer believe that the skills students pick up in science fields trump prestige, perhaps because curriculums are, in their words, “relatively standardized and there’s a commonly accepted body of knowledge students must absorb. So, a student may not need to attend the best possible school to ensure a good salary after graduation.”
The actual results? “If an engineering student chose to attend the University of Pennsylvania instead of Texas A&M, the average starting salary would differ by less than $1,000, but the tuition difference would be over $167,000,” the academics wrote. “At that slightly higher salary, you’d have to work for more than 150 years before you make up for that vast tuition difference.”
‘THE STARKEST EARNINGS DIFFERENCES ARE FOR BUSINESS MAJORS’
Another important consideration in the choice of a major, they found, was opportunity costs. “When choosing a major, families must consider how long it will take to complete it—because it might involve staying in school longer, driving up the cost of tuition and lowering potential earnings,” they conclude. “Consider a student who is deciding whether to major in engineering or economics, and suppose that it takes one year longer to complete an engineering degree. The starting salary for economics majors in 2015 is $52,100, according to PayScale.com, So if it takes an extra year to complete a degree in engineering relative to economics, then there is an opportunity cost of $52,100 associated with engineering because the student entered the labor force a year later.
“In practical terms, if engineering graduates make about $10,000 per year more than economics grads, then it would be about five years before engineering students would make up the lost salary. It could be up to 10 years if you add in the direct costs of tuition and living expenses for that extra year if the student is at a selective university.”
Bottom line: The economists say the biggest impact of school choice on earnings occurs for business majors. “The starkest earnings differences are for business majors, where graduates from the selective institutions earn 12% more on average than midtier graduates and 18% more than graduates from less-selective colleges,” they say. “Likewise, social-science majors from selective colleges earn 11% more than their midtier counterparts and 14% more than those from less-selective schools. For education majors, the differences are 6% and 9%, respectively. In humanities, graduates of selective schools earn 11% more than those from less-selective ones, although they don’t earn more than those from mid-tier schools.”