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Previous research had suggested that US graduates and non-graduates are not very substitutable (Race Between Education and Technology). We also know that the returns to a degree vary massively by subject. How substitutable are graduates from different majors?
I answer this question by grouping majors into skill groups using hierarchical clustering. Then, I construct a pseudo-panel to run major fixed effects and IV regressions of responsive wages are to the supply of similar majors.
I get null results that are precise enough to rule out the results one might expect from previous research at the aggregate level. Therefore, the elasticity of substitution must be relatively high. Why is that?
One reason is that graduates and non-graduates were always more substitutable than the canonical race between education and technology model implied. Those results came from non-stationary time series regressions and differencing out the unit root makes that result disappear.
This punts the question to why is there a high elasticity of substitution between graduates and non-graduates? I argue it's because many graduates and non-graduates have overlapping skillsets. Many graduates work in occupations that don't require a degree.
There's obviously much more in the paper, including multiple robustness exercises and a cool solution to classical measurement error. You can read it at the link and the replication files are available on Github.
papers.ssrn.com/sol3/papers.cf
This is getting massive traction (thank you everyone!) and some people are thinking it's about signalling. I think it's a story of human capital accumulating in many other places as well. There's more than one route to most jobs!
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Joseph Richardson
@JosephLabour
Replying to @Noahpinion
I'm not sure how to place it in that debate. More of the identifying variation is probably coming from "low return" majors. I think a big story is just that even when college is important, even more human capital accumulation occurs through other channels.
The biggest takeaway is that whatever microeconomic estimates of returns to a given degree that you most trust are likely to be stable with realistic reallocations of students. If you can relate it to signalling, I'd love to hear it, but I want to see the modelling assumptions!
It's a good thing that the specifications can be derived from a production function then! And it's the same type of production function everyone was looking at beforehand.
Brother, this is such a cool paper. I know you are probably super busy with job market stuff, but I really think you should write a non-academic version of this and get it out there. Congrats on your research!
Have added your paper to my list of examples of published papers that should have been scrutinised, in my undergrad Econometrics course ! G’luck in the JM!
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Econ nobel should go to the highest bidder if we want it to be allocated efficiently
I am delighted to share that Nobel laureates Esther Duflo and Abhijit Banerjee will join our Department of Economics at the University of Zurich on July 1, 2026, as Lemann Foundation Professors of Economics.
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If I were the social planner, the next Nobel Prize in Economics would be awarded to Samuel Bowles, Glenn Loury, and John Roemer. Their work is foundational to the modern study of inequality, addressing normative and positive dimensions of inequality with profound insight.
This is quite something. Two Nobel immigrants to the US leaving to emigrate to another country.
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Florian Scheuer
@Florian_Scheuer
I am delighted to share that Nobel laureates Esther Duflo and Abhijit Banerjee will join our Department of Economics @econ_uzh at the University of Zurich on July 1, 2026, as Lemann Foundation Professors of Economics.
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