Do Double Majors Face Less Risk? An Analysis of Human Capital Diversification

• In Event: What Matters for Majors: Program Choice in Higher Education

Abstract

Intro: Studies of the returns to human capital typically focus on its expected returns. By contrast, studies of financial markets place considerable emphasis on the risk of portfolios and how to reduce it. While human capital has an important vertical (i.e., quantity) dimension, it also varies widely in terms of the specific knowledge and skills acquired, especially at the post-secondary level. Little is known about whether broader human capital portfolios reduce exposure to labor market shocks. It is perhaps surprising that, despite the amount of attention focused on diversification of financial portfolios and the dominance of human over financial capital, more attention has not been paid to human capital diversification.

Purpose: To at least partly address this gap, we ask whether a more diversified portfolio of human capital, in the form of college majors, reduces earnings risk, potentially through a greater variety of occupational choices and a broader set of high-quality skills/knowledge. Our research question is highly relevant to current higher education policy, particularly in shaping academic majors and curricula.

Methods: We measure human capital diversification using the choice of a double major and use earnings as the main outcome variable. We construct a Bartik-style predicted wage index using the state-major level industry employment shares from 2009 to 2011 and the national wage growth rate in each industry to capture earnings risk at the state-major-year level. We also exploit the labor market downturn induced by the COVID-19 pandemic as a quasi-experimental shock to estimate how double majors respond differently from their comparable single-major counterparts. Our primary data source is ACS data (from 2009-2019), given its large samples, earnings measures, demographic characteristics, and information about primary and secondary majors. In addition, we link skills and knowledge measures from the Occupational Information Network (O*NET) database with the ACS sample.

Results: Double majors are more protected against earnings shocks compared to single majors, and we have evidence that the protection is greater the more distantly related the majors. Our results are robust to alternative versions of the Bartik-type exogenous earnings shock measure, different ways of measuring the distance between majors, and sharp economic downturns such as the COVID-19 pandemic. With the ACS/O*NET data link, we construct measures of major-occupation distance as the occupational placement share within each major and show that double majors are employed in a wider array of occupations relative to single majors. We also find that, when compared to single majors, double majors tend to work in occupations associated with higher levels of many types of skills and knowledge, although this gap diminishes somewhat as the level of the skills/knowledge increases. 

Conclusions: In this research, we show that double majors reduce earnings volatility. To leverage this benefit for students, universities might encourage double majors by fostering collaboration and interdisciplinary initiatives among different academic departments. More broadly, though, institutions can consider offering career counseling services that highlight the potential advantages of human capital diversification, such as on-the-job training and continuing education.

Author

• Andrew Hanks, The Ohio State University
  Presenting Author