US Recessions Reduce Demand for Liberal Arts Degrees

A new paper, published by the Institute for the Study of Labor, shows that students in the US are increasingly less likely to major in a liberal arts subject or education field at university as unemployment rates rise. Instead, at such times, US students tend to choose majors in subjects that are “more challenging, requiring more math” and lead to jobs with traditionally higher salaries.

The authors of this study found that when the unemployment rate increases by 1 percent, the share of men majoring in engineering fields rises by more than 0.6 percent, while the proportion choosing education or liberal arts falls by almost 0.4 percent and more than 0.2 percent, respectively. Overall, a one percentage point increase in the unemployment rate leads to a 3.2 percentage point reallocation of the major choices of men and a 4.1 percentage point reallocation for women, the study claims.

The study was based on findings from two databases – the American Community Survey and the Baccalaureate and Beyond Survey – and examined the relationship between the choices of major of people aged 20 from 1960 to 2011 and the unemployment rates during the same period.

“The recession-induced reallocation in college majors shifts the distribution toward fields of study that are more challenging, require more math, and, above all, are higher paying,” say authors Erica Bloom, principal consultant at Edgeworth Ecomonics, Assistant Professor of Economics at the University of Colorado, Boulder Brian Cadena and Assistant Professor of Public Policy at the University of Chicago Benjamin Keys. “These shifts suggest that a substantial number of college students make an earnings-maximizing response to recession conditions by choosing majors that are more insulated from recessions.” The authors also point out that the data suggests that many college students, and especially female college students, have “sufficient ability to complete more challenging majors, such as STEM fields, yet choose not to do so in periods with stronger labor market prospects”.

“The results suggest that even brief recessions can have a long-lasting impact on the distribution of human capital in the economy and provide new insight into how labor supply adjusts in subtle ways to temporary disruptions in labor demand,” the authors said.

For the full paper, see here.