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 may 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 may 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 for those who had taken both of these classes several years after their graduation, for both economics major and those who did not.  

Not surprisingly, 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 just fell below the threshold and majored in something else. Forty-six percent higher earnings was $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 and Mehta’s study is at one university, and other unspecified factors may be relevant. However, we will still call our major the major that pays. And still tell our readers they should still encourage their college students to major in economics. 

In a recent study by Zachary Bleemer and Aashish Mehta called will studying economics make you rich? A regression discontinuity analysis of the returns to college major in the American Economic Journal: Applied Economics looked at the wage returns for studying economics compared to other majors. The university they studied had a policy where students had to meet a grade point threshold in the intro econ class to be able to declare an economics major. They found that students who barely met the grade point average threshold and majored in economics earned $22,000 more in early career wages than they would have with their second-choice majors. In other words, majoring in economics for these students who just met the threshold helped them earn 46% more than the second-choice majors. The results were similar for males and females and may be larger for underrepresented minority students, and the wage premium seems to grow as workers age. They found that about half of the reason these economics majors earned higher incomes is that they worked in higher-paying economics-related industries such as finance, insurance, real-estate, and accounting.  

Bleemer and Mehta write that previous research found that the wage differences between workers in higher earning majors such as engineering, nursing, and economics compared to lower wage majors are similar to the wage differences between those who went to college and those who didn’t.   

Four caveats for their study, 1) their results are for a moderately selective public university and may not be representative for the average students, 2) their results are for students who already took an economics course and may not apply to other students, 3) there are some states where economics majors don’t earn above average earnings, so local labor markets have a large impact in determining major specific income premiums, and 4) there are large non-money benefits of attending a university, so wage returns are only one consideration in choosing a college major.