The Specificity of General Human Capital: Evidence from College Major Choice

College graduates with a science or business related degree earn up to 25% larger wages than other college graduates. However, individuals do not always pursue careers related to their major, generating within-major gaps in wages that are similar in size to the across major gaps. As an example, science majors who work in jobs related to their field of study earn approximately 30% higher wages than those working in non-related jobs. In this paper, we aim to estimate the true returns to college major accounting for the specificity of skill and to assess whether students know their labor market returns at the time they choose their field of study. We develop a structural model of human capital that allows for both skill uncertainty and di↵erential accumulation of human capital across major. Our findings indicate that the returns to obtaining a business or science degree, although quite large, are smaller than the raw gaps would indicate, as is the return to working in a job related to the individual’s field of study. We also find that individuals are uncertain about their future productivity at the time of the college major decision. The combination of skill uncertainty and the specificity of the return make majoring in a science related field a relatively risky human capital investment.