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The college earnings premium and changes in college enrollment: Testing models of expectation formation

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  • Dillon, Eleanor W.

Abstract

This paper studies how students build expectations of the future price of college skills when making college enrollment decisions. I compare several possible proxies for students’ expectations of the lifetime earnings gains from college. Students may base their expectations on the earnings of current workers or they may have some information about future earnings. Since 1970, a forecast of future earnings based on static expectations has been a poor predictor of the ex post college premium for successive cohorts. Nonetheless, high relative earnings for college-educated workers at the time a student graduates high school increases his probability of enrolling in college, while his cohort’s future realized earnings do not. A 10 percentage point increase in the contemporaneous college premium is associated with a 1 percentage point rise in college enrollment rates, controlling for tuition and student characteristics.

Suggested Citation

  • Dillon, Eleanor W., 2017. "The college earnings premium and changes in college enrollment: Testing models of expectation formation," Labour Economics, Elsevier, vol. 49(C), pages 84-94.
    • Handle: RePEc:eee:labeco:v:49:y:2017:i:c:p:84-94
    DOI: 10.1016/j.labeco.2017.09.006
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    Cited by:

    1. Kam C. Chan & Samuel Chang & Jean C. Snavely, 2022. "Effects of financial literacy on graduate school attitudes amidst COVID‐19," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2003-2015, September.

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