IZA DP No. 13591: The Changing Composition of Academic Majors and Wage Dynamics
We can observe several common trends related to higher education in many countries. First, there is expansion of higher education with a shift towards majoring in the social sciences. And second, there is growing inequality among college graduates in the labor market. In Russia, these trends have been present but with an amplified magnitude in recent years. Constructing a unique data set using open-ended responses to the Russian Longitudinal Monitoring Survey, we use the Russian case to examine the effects of the changing composition of academic majors during expansion of higher education on the dynamics of wage distribution. This paper contains several contributions to the literature. First, we extend standard wage analysis across majors by exploring within-major and across-cohort variation, as well as major-specific permanent and transitory variance components and their time paths. We show that the evolving distribution of wages relates to both changes in skill prices and wage shocks induced by economic fluctuations. Next, we show that variation in skill prices relates to equilibrium effects induced by changes in the supply of graduates specialized in different fields. Uneven expansion in certain majors induces labor market saturation and leads to an increase in the wage variance of graduates from the fastest growing majors. Finally, we point out the importance of accounting for within-major heterogeneity across cohorts, which could reflect differences in student ability distribution, changes in academic content, and changes in educational quality over time.