Earnings of economics majors: general considerations

Some liberal arts majors make more money than others, but by far the ones who make the most are economics majors. The 2013-2014 Payscale Salary Report reports the following figures. The second column is median starting salary and the third is median mid-career salary, in thousands of dollars

Economics 50 96
Political Science 41 77
Philosophy 39 78
History 39 71
English Literature 40 71
Psychology 36 60
Sociology 37 55

This trend is robust, and I’ll give more supporting data as an appendix at the end of the post.

The fact that economics majors make so much more is often taken to mean that majoring in economics raises future earnings. Is this true? In this post I’ll discuss some general considerations relevant to determining this, and discuss the sort of data that one might try use to resolve the question. In future posts, I’ll offer some such data, with analysis and discussion.

I’d welcome any other ideas for testing the hypotheses, as well as pushback on the conceptual framework, and/or alternative hypotheses.

As Bryan Caplan spells out in Economic Models of Education: A Typology for Future Reference, in general, a correlation between education and income can come from any of three things

  • Human capital acquisition: Education develops students’ employable skills.
  • Ability bias: Obtaining an educational credential reflects greater or lesser pre-existing ability (that exists independently of what’s learned in school), which is later reflected in earnings.
  • Signaling: An educational credential signals pre-existing ability (which as before, can be independent of what’s learned in school) which makes employers more likely to hire one.

“Ability” here is best defined in a nonstandard way, as “traits conducive to making money.” An example of such a trait is intelligence, but there are other traits that are conducive to making money, such as the desire to succeed in lucrative careers, that don’t fit the standard definition of “ability.” Similarly, aside from acquiring human capital, one can also acquire other traits conducive to making money, such as the desire to make money. With this background in mind, consider the following hypotheses:

  1. Human capital acquisition — economics majors learn more employable skills in school than other the majors do, and this qualifies them for higher paying jobs.
  2. Acquisition of a desire to make money — Majoring in economics makes students want to make money more than they would have had they majored in other subjects, so that they seek higher paying jobs.
  3. Pre-existing ability as measured by tests  The people who choose to major in economics have higher standardized test scores than those who major in other subjects. This reflects underlying traits such as intelligence that make them perform better in job interviews, enable them to rise up the workplace ranks faster once hired and otherwise increase their earnings (for reasons not caused by their majoring in economics).
  4. Pre-existing desire to make money — The people who choose to major in economics are unusually determined to make money (or to succeed in lucrative careers for other reasons, which amounts to the same for our purposes). This will lead them to seek higher paying jobs (again, for reasons not caused by their majoring in economics).
  5. Signaling  Majoring in economics signals traits that employers find desirable.

In principle, any combination of these hypotheses could explain why economics majors make more money. These are not necessarily exhaustive: there could be other factors that play roles, but we’ll restrict consideration to #1-#5 here.

To the extent that #1, #2 and #5 explain the income gap, majoring in economics increases earnings (on average), and to the extent that #3 and #4 explain the income gap, majoring in economics does not increase earnings (on average). So for a high school or early college student who seeks to have high earnings, the question of the relative roles of these factors in explaining the earnings discrepancy is significant.

While #1, #2 and #5 all point toward majoring in economics increasing earnings, they may have very different practical implications from one another. Some examples of this:

  • If the effect was all due to #1, then learning the material taught in the courses past the point needed for getting A’s could increase income, whereas if the effect was all due to #5, then learning the material past the point needed for getting A’s would carry no additional benefit.
  • If the effect was all due to #2, then for somebody who already gives top priority to making money, majoring in economics would not increase earnings.

So determining the relative roles of #1, #2 and #5 can also be important.

To assess the relative roles of #1-#5, we’ll discuss some a priori reasons why they might or might not explain the income gap, and what one would expect of real world data if a given factor played a major role.

Human capital acquisition

There’s a great deal of material online claiming that majoring in economics builds skills that employers value. For example, Economics: The Most Employable Liberal Art says

While economics is technically classified as a liberal arts degree, it’s the only one with the distinction of offering both technical skills and a broad liberal arts education. That combination can prove to be very powerful, arming economics grads with in-demand knowledge in business, law, and math that look great on a resume, as well as soft skills that employers really want, including critical thinking, interpersonal abilities, and complex problem solving. Thanks to this powerhouse of technical-liberal skills, economics majors can find employment in a wide range of careers.

“An economics degree opens a lot of doors,” says Dr. Anca M. Cotet with the Seton Hall Department of Economics and Legal Studies. Chris Mader, managing director of corporate accounts with Randstad agrees. “

An education in economics is good preparation for almost any career path,” says Mader. “Economics majors generally have a holistic view of the business, and learn invaluable business skills and acumen that will be used throughout one’s career, no matter which industry they choose.” With these great opportunities, economics majors also enjoy a demand that puts them among the top majors by salary potential.

However, one can also find characterizations of other majors that paint them in favorable terms from the point of view of building employable skills, and even if economics did compare favorably, that wouldn’t mean that economics builds employable skills to an appreciable degree: maybe no liberal arts degrees build employable skills to an appreciable degree.

Economist Bryan Caplan has a different take from the people quoted above:

In my experience, undergraduate econ majors learn only two skills they’re likely to use in any job outside the Ivory Tower: (a) how to calculate a present discounted value, and (b) basic statistics. Except in top schools, I doubt most econ majors master either (a) or (b). The remainder of the economics curriculum simply isn’t vocational.

It could be that even if economics doesn’t teach material that’s directly relevant, studying economics indirectly builds skills such as critical thinking, which transfer over. Caplan comments on this, too:

Many educators sooth their consciences by insisting that “I teach my students how to think, not what to think.” But this platitude goes against a hundred years of educational psychology. Education is very narrow; students learn the material you specifically teach them… if you’re lucky.

To help resolve the question, ideally one would have a rich data set with anecdotal reports from former economics majors about how useful they’ve found what they learned in their coursework in their professional lives. Even this would not be decisive, because of people’s imperfect introspection.

One possible test for whether majoring in economics builds employable skills comes from comparing the growth of economics majors’ salaries over the course of theirs career with the growth of other majors’ salaries over the course of their careers. Suppose that it were true that the skills that economics majors built by majoring in economics are as useful at the beginning of their careers as they are midcareer. Then if majoring in economics built employable skills, one would expect percent increase in wages to decrease over time. Why? Once people enter the work force, they begin accumulating more employable skills: possibly at a faster rate than they did while they were in college. Even if economics majors are 2 years ahead in training upon entering the workforce, while that gap would initially be highly significant, 10 years down the road it would be considerably less so.

In practice, the skills that one learns in economics could become more useful (e.g. if higher level managerial type jobs use them more than entry level jobs) or less useful (e.g. because some people change fields of work over time, tending to move away from fields related to their major rather than toward fields related to their major). So there’s a lot of uncertainty about how a wage gap due to skills built from learning economics would evolve over the course of a career.

But one should expect there to be a general drift tendency in the direction of what one learns in college mattering less over the course of one’s career (even if this drift tendency may be outweighed by other factors), so that if the wage gap decreases over time, that’s evidence in favor of majoring in economics building employable skills, and if it remains constant or increases over time, that’s evidence against majoring in economics building employable skills.

Thus, by comparing percentage increase in wages across majors over the span of careers, one can obtain evidence for or against majoring in economics building employable skills.

Acquisition of desire to make money

Something that economics majors learn to a greater degree that those who major in other subjects is that income is a proxy to social value generated. Thus, majoring in economics will shift those who want to contribute social value from lower paying careers to higher paying careers.

It’s also been suggested that studying economics increases people’s selfishness on account economic models assuming self-interested agents (see e.g.  Economics makes you selfish and Are economists selfish? A lit review). To the extent that this is true, those who would otherwise have chosen work based on the social value generated rather than income may give higher weight to income than to social value contributed when selecting a career. Here too, majoring in economics would shift people from lower paying careers to higher paying careers. The research on studying economics increasing selfishness has been criticized as nonrobust, and may not prove what it’s been purported to — I just raise it as one possibility of many.

To investigate the possibility that majoring in economics increases desire to make money, one could survey recent college graduates about the evolution of their attitude toward making money over the course of college, and compare the results for economics majors with the results for liberal arts majors (perhaps also including questions on the role that they think their major played).

Preexisting ability as measured by standardized tests

SAT scores and other standardized test scores are known to correlate with earnings.

One reason that this could be is that standardized test scores are a proxy to IQ, and IQ is known to correlate with earnings, with the correlation thought to be partially causal. Another reason could be that scores may be partially a measure of test preparation, which could correlate with conscientiousness, which is known to correlate with income, with the correlation thought to be largely causal. Standardized test performance also reflects the ability to remain focused for the duration of the test, which one would expect to correlate with job performance.

Since the SAT is taken before college, SAT scores reflect ability that precedes majoring in economics. Thus, a difference in SAT scores between economics majors and the other majors would reflect a preexisting difference in ability between economics majors and the other majors. One can then compare the wage gap between economics majors and other majors with the wage gap between people who have SAT scores comparable to those of economics majors and SAT scores comparable to those of the other majors, to get a sense for the fraction of the wage gap that’s driven by the abilities measured by the SAT.

The GRE and LSAT also pick up on the abilities measured by the SAT. These are taken toward the end of college, after a student has taken courses for his or her major and are therefore an a priori weaker measure of pre-existing ability, but data on how average scores on the GRE and LSAT vary by major still has some relevance to the degree to which the wage gap between economics majors and other majors is driven by pre-existing ability.

The desire of economics majors to succeed in lucrative careers before selecting a major

If students believe that majoring in economics will help them succeed in lucrative careers (irrespective of whether it actually does), then one will expect to find an unusually high concentration of people amongst economics majors who want to succeed in lucrative careers. These people will be more likely to take high paying jobs (relative to their peers in other majors, who may give more weight to factors such as work-life balance and enjoyment of work). This could partially explain why economics majors make more money later on.

Why might students believe that majoring in economics will help them succeed in lucrative careers? Some possibilities:

  • Assuming that the correlation is causal — They may notice that economics majors make more money, and assume that the correlation between majoring in economics is causal.
  • Building human capital — They may think that economics builds employable skills more than other majors do. For example, they may mistakenly assume that the study of economics is the study of making money, because economics has something to do with money. Or, they may have object level knowledge that economics does in fact teach employable skills.
  • Signaling — See the section below.

Furthermore, if students in economics want to make money more, then students who want to make money may want to major in economics more, as it gives them an opportunity to be around people like themselves (the major could serve as a better “cultural fit” for them).

One could assess the relative desire of economics majors to make money by surveying students on why they chose their major, listing “financial returns” as one of the choices, and compare the strength and frequency with which economics majors give this weight, relative to other majors.

The signaling value of majoring in economics

If employers view economics majors more favorably than they view other majors, this will raise the expected earnings of economics majors. Some positive signals that majoring in economics might send to employers are:

  • Having built employable skills through studying economics. To the extent that employers believe (whether rightly or wrongly) that majoring in economics builds employable skills more than the other majors do, majoring in economics sends a positive signal.
  • Strong performance on what standardized tests measure. As above, this is correlated with earnings, and relatedly, job performance.
  • Desire to succeed in lucrative careers. Majoring in economics would signal this if economics majors are thought to have such a desire. As above, there are reasons to think that economics majors do disproportionately have this desire. Employers may believe (whether rightly or wrongly) that this is a desire will lead the job candidate to try to do a good job to get raises and promotions.
  • Work ethic. Majoring in economics would signal this trait if economics were thought to be a more difficult major than other liberal arts majors. My impression is that this is what people generally believe.

One could assess the degree to which employers prefer economics majors by referring to survey data. Ideally, one would have survey data specifically on the strength of their preference for an economics degree over a degree in another liberal art, but in absence of this, one can look for data on (a) how much they say that a major matters and (b) whether they list economics as a preferred major.

Analogous to the situation with human capital acquisition, there’s reason to think that the signaling benefits of majoring in economics decrease over time:

  • As one progresses through one’s career, one develops a history of work experience, and employable skills, and the role of these things relative to the role of what one majored in increases over time.
  • Once one has been hired, one’s major doesn’t figure in to decisions about promotions and raises.

Based on this consideration, if the percentage by which economics majors are ahead decreases over the course of their careers, this is evidence in favor of signaling benefits playing a role in explaining the wage gap, whereas if the percentage remains the same or increases, this is evidence against signaling benefits playing a role in explaining the wage gap.


We’ve presented five factors that might lead economics majors to make more money than other liberal arts majors. Majoring in economics could increase employable skills, reflect employable skills, increase desire to make money, reflect desire to make money, and/or signal desirable traits to employers. The relative roles of these things has relevance to people who give substantial weight to their future earnings and are trying to choose between majors. In a future post, I’ll offer data and analysis that tests some of the hypotheses raised in this post.

Appendix: Data showing that economics majors make more

Here we report on survey data from seven sources, which consistently shows that economics majors make more money. The surveys sometimes have different methodologies and study different populations, so one should exercise caution in comparing numbers between surveys. Unless otherwise specified, numbers are in thousands of dollars. In some cases the sources did not have data on all of the majors that we considered: in such cases we listed the data that was available.

The 2013-2014 Payscale Salary Report reports the following figures. The first column is major, followed by starting salary, midcareer salary, starting salary divided by economics major starting salary, and midcareer salary divided by economics major midcareer salary.

Economics 50 96 1 1
PoliSci 41 77 0.82 0.8
Philosophy 39 78 0.78 0.81
History 39 71 0.78 0.73
English 40 71 0.8 0.73
Psychology 36 60 0.72 0.62
Sociology 37 55 0.74 0.57

The National Association of Colleges and Employers Salary Survey gave 25th / 50th / 75th percentiles of starting salaries by major. In the last three columns, we compute these as percentages of the corresponding figures for economics.

Economics 43 53 66 1 1 1
PoliSci 33 40 50 0.76 0.75 0.75
History 34 40 48 0.79 0.75 0.72
English 32 38 48 0.74 0.71 0.72
Psychology 30 35 43 0.69 0.66 0.65
Sociology 29 35 43 0.67 0.66 0.65

An PayScale report from 2008 gives more refined information about midcareer earnings by major: at the 10th, 25th, 50th, 75th and 90th percentiles

Economics 50 70 98 145 210
PoliSci 41 55 78 114 168
Philosophy 35 52 81 127 168
History 37 49 71 103 149
English 33 44 64 93 133
Psychology 31 42 60 87 127
Sociology 30 40 58 81 118

And here are the earnings as a fraction of earnings of economics majors at the corresponding percentile:

Economics 1 1 1 1 1
PoliSci 0.82 0.78 0.79 0.78 0.8
Philosophy 0.7 0.74 0.82 0.87 0.8
History 0.74 0.7 0.72 0.71 0.7
English 0.66 0.62 0.65 0.64 0.63
Psychology 0.62 0.6 0.61 0.6 0.6
Sociology 0.6 0.57 0.59 0.55 0.56

What’s It Worth: The Economic Value of College Majors gives 25th / 50th / 75th percentiles by given major (including both people just stating out and and people midcareer). The first three columns have these, and the last three have these as fractions of the corresponding economics major salaries.

Economics 42 70 108 1 1 1
PoliSci 39 59 90 0.92 0.84 0.83
History 34 50 77 0.8 0.71 0.71
English 34 49 71 0.8 0.7 0.65
Psychology 31 45 65 0.73 0.64 0.6
Sociology 33 45 68 0.78 0.64 0.62

Heterogeneity in human capital investments: High school curriculum, college major, and careers (Table 1) gives hourly wage data by major using data from 2009, at the 10th percentile and 90th percentile, and at the 90th percentile excluding those with professional degrees, and comes up with the following. As above, the final three columns are salaries as fraction of economics majors’ salaries

Economics 15.25 111.76 78.43 1 1 1
PoliSci 14.71 75.41 57.25 0.96 0.67 0.72
History 12.65 64.17 49.02 0.82 0.57 0.62
Psychology 12.25 49.02 41.18 0.80 0.43 0.52
At the low end, the differentials between the economics majors and others are lower than that reported in the 2008 Payscale report, and at the high end they’re greater. It’s unclear what’s going on here (presumably a difference in survey methodology), but regardless, economics majors come out on top.

The Census Bureau’s 2010 American Community Survey fraction of people who majored in a given subject who are in the top 1% of Americans in earning power, by subject. Percentages are below:

Economics 8.2
PoliSci 6.2
History 4.7
Psychology 4.3
English 3.8

According to a Economics: Good Choice of Major for Future CEOs by Patricia Flynn and Michael Quinn:

Economics ranked third with 9% of the CEOs of the S&P 500 companies in 2004 being undergraduate Economics majors, behind Business Administration and Engineering majors, each of which accounted for 20% of the CEOs. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major.

In Table 5, the authors give the probability of going on to be a CEO, as a fraction of the probability for an economics major:

Economics 1
PoliSci 0.31
History 0.25
English 0.08
Sociology 0.05
Psychology 0.04

5 thoughts on “Earnings of economics majors: general considerations”

  1. Pingback: Assorted links
  2. Very interesting paper. I conducted some “informal” research comparing starting and 6-years after graduation of economics and Business majors in Argentina. Major findings include: (a) no difference in starting salaries betwees business and econ, (b) for graduates with seven or more years after graduation slight advantage of business over economics, (c) salaries of graduates with 7 or more years of experience = 3 x salaries of individuals with 1 or 2 years since graduation. For those who can read Spanish, complete report here:


    Not a random sample though…

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