What Chilean Graduates Can Teach Us About Higher Education Policy

by Reihan Salam

To shed light on why a growing number of college graduates in the affluent market democracies are experiencing ex-post regret about the time and resources devoted to higher education, Justine Hastings, Christopher Neilson, and Seth Zimmerman have a new paper on labor market outcomes for Chileans who enrolled in postsecondary education from 1985 to 2011:

We use administrative data from Chile from 1985 through 2011 to estimate the returns to postsecondary admission as a function of field of study, course requirements, selectivity, and student socioeconomic status. Our data link high school and college records to labor market earnings from federal tax forms. We exploit hundreds of regression discontinuities from the centralized, score-based admissions system to estimate the causal impacts of interest. Returns are positive and significant only among more-selective degrees. Returns are highly heterogeneous by field of study, with large returns in health, law and social science, as well as selective technology and business degrees. We find small to negative returns in arts, humanities and education degrees. We do not find evidence that vocational curriculum focus increases returns for less selective degrees. We do not find differential outcomes for students coming from low- versus high-socioeconomic backgrounds admitted to selective degrees. [Emphasis added]

One of the potential implications is that Chile and other countries that have invested large sums in higher education ought to do a better job of informing students about the labor market outcomes for students who’ve enrolled in various courses of study:

Our findings also speak to key economic and policy questions. First, they suggest sizeable market frictions in the supply of and/or demand for high-return degrees. Marginally increasing offerings in particular fields could raise aggregate earnings, suggesting constraints on supply (Bound and Turner, 2007). On the other hand, while excess demand for degrees with zero to negative earnings returns may be driven by non-pecuniary factors, recent empirical evidence suggests that students may make uninformed or short-sighted college and career choices (Arcidiacono et al. 2010; Jensen, 2010; Hastings et al. 2013a,b; Hastings, Neilson and Zimmerman 2013; Jacob, McCall and Stange, 2013; Wiswall and Zafar 2013). Information aggregation may be a public good, suggesting a role for government to facilitate informed demand and responsive supply (Beyer et al. 2013). Finally, we show that students from low-SES backgrounds gain from attending selective programs and high-return fields as much or more than their high-SES counterparts, suggesting a role for targeted admissions, loan and recruitment policy (Hoxby and Avery 2012). [Emphasis added]

Note that bipartisan opposition to a federal student unit record system, which mostly reflects the opposition of higher education incumbents, is a huge barrier to informed demand and responsive supply in the United States.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.