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

Eleanor W. Dillon

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)84-94
Number of pages11
JournalLabour Economics
Volume49
DOIs
StatePublished - Dec 1 2017
Externally publishedYes

Keywords

  • Belief formation
  • College enrollment
  • College premium

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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