In order for state investments in higher education to have the greatest possible impact, it is very important that everyone is able to pursue the right course of study according to their abilities and inclinations. If the state invests in higher capacities and creates more opportunities in a subject with a high educational return, more applicants can realize their interest in the subject and thus earn a higher income and achieve more satisfaction in life. When students switch from other disciplines to their preferred subject, slots in the university programs they leave behind become available. For the overall economic return on investments in education, the profit is in the "movers," who can use the freed-up program slots to make a better choice for their studies. Their income gains should also be considered in an overall economic assessment of investments in education.

Around 45% of young people in Switzerland opt for higher education at a technical college or university. Education has a return. On average, they can later expect a significantly higher wage than their peers who did not seek out higher education. However, it depends largely on the choice of subject and educational institution. These determine how high the return on education will ultimately be.

The Norway example

I have examined the educational returns of individual courses in Norway and how future income depends on a clever choice of course. To estimate the returns of education, I will cite a feature of the Norwegian education system. In order to enroll at a Norwegian university, baccalaureate graduates must submit a wish list in which they indicate up to 15 preferences consisting of a field of study and educational institution. The available spaces in each program are then allocated, with the high school graduates with the best final grades given the highest priority. For example, if there are only 200 places to study medicine at the University of Oslo, the 200 best applicants who have listed medicine in Oslo as their first preference will be admitted to the program. The remaining applicants are accepted for majors according to their other priorities. On average, only 40% of applicants are able to secure their most preferred topic of study and university. After all, almost 80% of students are classified according to one of their first three preferences. Almost 80% are accepted into a university in line with their first three preferences.

How does this influence the economic return with education? To estimate returns on education, I use administrative information on family background, place of residence and income. The sample includes all students who applied for higher education between 1998 and 2004. The income is considered eight years after the application.

In order to rule out distorting or unobserved factors influencing the choice and allocation of different fields of study, I compared the incomes of people who indicated the same preferences and who are right on the admission border between two fields of study and who, with a little luck, could have made their next better choice. This method enables the causal effect of the choice of course on later professional success to be estimated since the students analyzed differ only in their final field of study but not in their preferences or other characteristics.

Imagine that all students who earn a medical degree in Oslo as their first choice are ranked based on their grades. I now compare the later earned income of the person ranked 200 with the income of the person ranked 201. These two people should have the same "qualities" given the almost identical ranking, but only the first person can study medicine in Oslo. The second person must enroll in another program or different educational institution. In this way, one can isolate the influence of the choice of study on later income and eliminate other influences.

So, if you compare two students at the admission limit, you can estimate the effect of subject selection on educational returns. For example, a liberal arts graduate earns less, on average, than if the same person had pursued their next best choice of major. On the other hand, for example, a graduate with a medical degree can expect an increase of almost $60,000 compared to their next best alternative.

Impact on labor market

I used my results to estimate the potential impact of different policy choices. How would a higher admission rate for the study of natural sciences affect later success in the labor market? Opening up admission to this program would have both a direct and indirect effect on the return on education. Students who could select their first choice of study if a higher admission rate were established would be directly affected. Indirectly, however, other groups would also benefit, namely those who could move up to their next better place at university due to the slots now vacated by the students who benefited from the higher admission rate. Researchers estimate that 100 additional places in science courses would result in an average income increase of $19,400 (a direct effect for those who are able to realize their first choice) and $46,100 (the indirect effect on those who get the next higher place at university). The large indirect effect can be explained by the fact that many of the 100 places that become free are in fields of study with a high educational return, for example 19 places in the area of ​​teaching and 27 in the area of ​​business administration.

Reforms that change the admission rates for a field of study, numerous slots in medicine, for example, should always keep an eye on the statuses of applicants who were unable to enroll in their most preferred topic of study. These movers, who with reforms could enroll in their next better choice, could achieve considerable gains in income. This aspect must be included in an overall economic assessment. However, this data is often neglected in today's education policy.