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The Effect of Superstar Firms on College Major Choice

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  • Lou, Dong
  • Choi, Darwin
  • Mukherjee, Abhiroop

Abstract

We study the effect of superstar firms on an important human capital decision — college students’ choice of major. Past salient, extreme events in an industry, as proxied by cross-sectional skewness in stock returns (or in favorable news coverage), are associated with a disproportionately larger number of college students choosing to major in related fields, even after controlling for the average industry return. This tendency to follow the superstars, however, results in a temporary over-supply of human capital. Specifically, we provide evidence that the additional labor supply due to salient, extreme events lowers the average wage earned by entry-level employees when students enter the job market. At the same time, employment size and employee turnover stay roughly constant in related industries, consistent with the view that labor demand is relatively inelastic in the short run. In the longer term, firms cope with the supply increase by gradually expanding the number of positions that require prior experience.

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  • Lou, Dong & Choi, Darwin & Mukherjee, Abhiroop, 2017. "The Effect of Superstar Firms on College Major Choice," CEPR Discussion Papers 12296, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12296
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    Cited by:

    1. Johan Hombert & Adrien Matray, 2019. "The Long-Term Consequences of the Tech Bubble on Skilled Workers' Earnings," Working Papers 255, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Johan Hombert & Adrien Matray, 2019. "Technology Boom, Labor Reallocation, and Human Capital Depreciation," Working Papers 260, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Hombert, Johan & Matray, Adrien, 2019. "Technology Boom, Labor Reallocation, and Human Capital Depreciation," CEPR Discussion Papers 14136, C.E.P.R. Discussion Papers.

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