Economics

Economics Major Income Premium

Zachary Bartsch2 Comments

I’ve written about Economics major incomes before. The consistent empirical fact is that they earn more than most other college majors. But why? My working theory is that’s it’s due to human capital differences.

Challenge 1: Top Business Schools

“The highest ranked business schools offer economics majors with various business concentrations instead of separate business majors. So, the high average income of econ majors is due to those top tier finance concentrations and the like.”

This challenge doesn’t hold water. If the high average income were just due to top performers, then omitting them would break the pattern of high economic major compensation. But it doesn’t. Trimming the top and bottom 10% of incomes for each major doesn’t cause economics to fall much in the ranking.

Challenge 2: Econ Majors Choose Higher Paying Occupations

“Economists aren’t especially productive. They merely choose higher pay occupations. Other majors could achieve the same thing if they wanted to.”

This challenge is partially true. Economics majors do choose higher paying occupations. The Bureau of Labor Statistics has an extensive list of occupation categories and codes that are linked to the American Community Surveys. I examine the broadest categories that have sample sizes of at least 40 for each economics and other majors.  The below scatter plot shows the relationship between average income by occupation and the proportion of economics majors who chose to work in those occupations. There is clearly a positive relationship. Economics majors do choose higher paying occupations.

But the claim about productivity isn’t quite right. If economics majors were just as productive as other majors within their occupational category, then they would earn around the average income within each occupational category. But they don’t! Below is a chart that plots the average income premium over non-economics majors within each occupational category (error bars are one standard error).  The occupations to the left are more abstract or even social in nature. That’s where economics majors earn their big income premium. Further to the right are occupations that are more ‘hands-on’. Economics majors earn about the same as non-econ majors in those categories.

The one interesting case is ‘Computer and Mathematical’ occupations, which are abstract in nature and yet economics majors have no better earnings on average. Those occupations have a higher than typical proportion of Computer Engineering, Computer Science, Computer Information Systems, and Mathematics majors. Given that those majors 1) also have training in abstract theory and 2) are highly specialized, it’s impressive to me that economists can keep up.

Additionally, economics majors are not uniformly distributed across occupational categories. They tend to pursue occupations in which they have an advantage as indicated by their wage premium. The below chart has the same horizontal axis as the one above and has more mass further to the left. A higher proportion of economics majors are in the occupations where they outperform others in the same occupation.

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New Health Freedom Index

James BaileyLeave a comment

The Center for Modern Health and the Knee Regulatory Research Center just released an index of how free residents in each state are to provide and pursue health care as they see fit. Their summary map looks like this:

The index was created by averaging measures of freedom in 54 separate categories, summarized into the 5 broad areas of Professional, Institutional, Patient, Payment, and Delivery Freedom. A report with maps for each of the 54 underlying measures is here, and a spreadsheet with all the data is here.

This project represents a major effort on an important issue, but I have to say my favorite part is just how unusual the final map of the overall ranking looks. I’ve created many maps of the states based on data and seen many more, but almost all of them (no matter the underlying variable they represent) end up falling into a handful of looks. They are either secretly maps of population density, or North vs South, or East vs West, or the South + Appalachia (high poverty, low health and education, et c). But the Health Freedom Index groups states in a way I’ve never seen before, putting Maine and New Hampshire with Mountain West states as the most free, while South Carolina and Louisiana join California and much of the Northeast among the least free.

Some of the Index’s creators will be presenting it online on September 18th.

Note: I’m affiliated with the Knee Regulatory Research Center at WVU, but I wasn’t directly involved with this project. I’m working on a different data project with Knee I hope to discuss here soon.

Women Have Always Worked, Often in the Formal Labor Force

Jeremy HorpedahlLeave a comment

In a February 2025 blog post, I created a chart showing male and female work patterns both inside and outside the home, going back to 1900. The data was for the United States, and the general trends were more female work in the paid labor force, more male work in the household (rather than paid labor force), but overall total hours of work being roughly constant from 1900 to 2023 (on average, of course).

Despite women always working, 1900 did look a lot different: adult working-age women in the US spent about 50 hours per week working in their own household, and a little under 10 hours per week in the formal paid labor force. Men were almost a mirror image of this (though working a few hours less per week in total).

So the gradual change over the 20th century was a huge shift in gender roles, and by 2023 women on average spent about the same number of hours in household and paid work. But the US is something of an anomaly here. Female labor force participation was higher — in some cases much higher — in other developed countries around 1900. Using data collected by Claudia Olivetti, here are female labor force participation rates for working age women (generally ages 15-64) around 1890-1900 (I average across years if there are multiple estimates):

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College Major & Income Sources

Zachary Bartsch4 Comments

We already know that economists earn more income on average. But when and how one earns income matters for how you spend your time both now and in the future. Being more productive affords the option to earn more money by working. For that matter, it also affords the option of staying home or pursuing passion projects at work or elsewhere.  Earning more money earlier in life also has implications for how you spend your time later in life.

Specifically, given the choice, you may choose to work less as a young adult so that you can spend more time with your family. The tradeoff isn’t just whether to work now or spend more quality time with others. After all, money can be saved for the future. Choosing to work less (or for a lower salary) today means that you may choose to work more in the future in order to achieve your desired standard of living. Personally, assuming I make it to old age, I would very much like to afford spending time with my family.

The more that you earn earlier in life, the more that you can save and invest for the future. The more that you save, the more that you can enjoy the fruits of compound interest. It’s not just a matter of earning more now rather than later. If you work and save now, then your future income can be passive. That is, your future earnings won’t require you to spend your time in an office or otherwise employed. You can still do that if you want, but you wouldn’t *need* to.  By having more retirement, investment, and social security income, your future self will earn plenty of income without spending as much time formally working.  You can instead spend time with loved ones or on other pursuits.

Below is the stacked bar graph of average income sources over each decadal age cohort. All data is from the 2024 ACS, so it’s just a snapshot in time rather than following individuals over the course of their life. I singled out people with Economics, Finance, and other 4-year college degrees. Economists make the most lifetime income if we count salary and other compensation alone. But if we look at the older cohorts, economics majors also earn more passive income. You’d think that Finance majors would earn more from investments. But among people in their 70s, economics majors earn more investment and retirement account income. Finance majors do earn more social security in that cohort, however.

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Ranking State Economies On a Governor Time Scale

James BaileyLeave a comment

Governors serve for 4 years in most US states. You can find many rankings of state economies out there, but they tend not to measure how states have done over the last 4 years- instead they either use measurements based on levels (things like mean income which were mostly determined by events before the current governor’s term), or one year of growth (which has a lot of randomness), or they don’t explain what period it is based on at all.

But if you want to know how a state’s economy has performed under an incumbent governor (for instance, to inform your vote on whether to re-elect them), the best way is to measure it’s economic growth over the period of their term- most commonly, 4 years. A governor currently up for re-election following their first term would typically have taken office in January 2023. Below I map how two of the most commonly used economic measured have fared by state from January 2023 to the most recent available data (what is available differs by measure):

Source: My calculations from BEA current-dollar GDP
Source: My calculations from BLS data on total employment

Overall South Carolina looks best and Wyoming looks worst. There might be other economic measures you prefer, like poverty rates or median income- but whatever measure you prefer and whatever politician you are evaluating, I encourage you to check how that measure has changed since their term started and how that ranks compared to other similar regions.

This post was inspired by the mailers that would-be Rhode Island Governor Foulkes’ campaign keeps sending me suggesting I vote for her in the primary against incumbent Rhode Island Governor Dan McKee because “we are last in the country for our economy”, citing this CNBC ranking. Looking into the source, CNBC says:

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Median Family Income for Married Couples With Children Is Probably Higher Than You Think

Jeremy HorpedahlLeave a comment

In 2024, median income for married couples with children at home was $143,400 in the US. That’s an almost 80 percent real (inflation-adjusted) increase since 1974, the first year Census reports comparable data. Is there some selection bias in who chooses to get married and have kids? Yes. Has there been an increase in dual-income families? Yes, but probably much less than you think (the median family of this type already had two earners by the late 1970s).

With those caveats, this is still pretty impressive:

Income By Major (ACS 2024)

Zachary Bartsch9 Comments

A chart showing the average income by major was recently making the rounds on social media. So, I tried to replicate it. It turned out that some of the college majors were omitted. That part actually makes sense. The 2024 American Community Survey includes 174 degree fields – which is way too many for a clearly labeled bar chart. So, for local advertisement, I used only the majors and their equivalents that are offered at my university.  That chart is below (unweighted).

These are just raw average earnings by college major for employed adults. They all have decent sample sizes. Below is the cumulate distribution of sample size for each major. The smallest sample size is 45 (Military Technologies) and only 3% have sample sizes below 100. Only 34% have sample sizes below 1k.

You better believe that my colleagues and I show this chart to every single one of our classes. Obviously, it’s truncated from the full 174 majors, but it’s the relevant chart for us. If we use the full sample of college majors, Economics ($170k) drops to 3rd highest income, behind “Petroleum Engineering” ($173k) and “Health and Medical Preparatory Programs” ($183k). To be perfectly honest, those latter two sound a lot more difficult and have surprisingly little pay bump in compensation. Being more difficult is also consistent with the smaller sample size Economics=13k, Petroleum Engineering=343, and Health and Medical Preparatory Programs=1,099.  

One challenge that I’ve heard about the chart is that top business schools, such as Wharton, have Economics majors and various business concentrations. So, those top performing financiers are getting categorized as Economics in a way that is a bit misleading to young students elsewhere who are trying to decide on a major. If that’s true, then we should see Economics drop in the rankings if we omit the top-most earners.  After all, the criticism is that they’re pulling up the average.

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Should Immigrant Doctors Have to Retrain?

James BaileyLeave a comment

The United States has long answered this question “Yes- they need 3+ years of retraining unless they are from Canada”. But that has been changing rapidly since Tennessee began allowing foreign doctors to practice without years of retraining in 2023.

Doctors can’t start practicing independently right after getting their MD- they need 3 to 6 additional years of supervised on-the-job “residency” training first (even graduates of US medical schools). Most developed countries have similar systems of on-the-job supervised training for junior doctors. But until recently the US didn’t recognize training from any country besides ourselves and Canada. Doctors were required to re-do a US residency before practicing here even if they had been successfully practicing for decades in one of the dozens of countries with life expectancies higher than the US.

I’ve been pointing this out to my health economics classes for years as one of many quirks of the US system that keeps healthcare expensive and hard to access. But since Tennessee offered a faster pathway for trained foreign doctors with HB 1312 in 2023, dozens of states have rapidly follow suit:

Source: The Match Guy, May 2026

I think the impact of this change has been limited by the fact that states still tend to have other requirements for foreign doctors, like spending a year or two under supervision at ACGME-accredited programs. This still serves as a shorter quasi-residency, and these programs are exactly the ones that tend to have plenty of doctors anyway- big urban hospitals, not small rural clinics. Immigration rules present their own high and rising barriers; most foreign doctors can’t come here in the first place.

That said, I’m still happy to see policy experiments from states attempting to address our doctor shortage. These state laws waiving residency retraining requirements are so new and so numerous that the present an excellent opportunity for research on their effects; I’m adding this to my ideas page.

I noticed the rapid expansion of these laws when doing research for a talk I’m giving at Creighton University at 4pm today (if you’re in Omaha, maybe see you there); thanks to Creighton for the inspiration.

Bond Market Blows Off Treasury Bond Buyback; Gold and Bitcoin Soar

Scott BuchananLeave a comment

Scott Bessent used to be a serious financial player. When he was with George Soros’s fund, he helped them make a billion dollars in 1992 by betting against the British pound, and $1.3 billion in 2013 with a bet against the Japanese yen. He also ran his own hedge fund, with as much as $5 billion under management. In 2023-2024 he hitched his wagon to the fortunes of Donald Trump, becoming a large campaign contributor and fundraiser. He was rewarded by being made Treasury Secretary. On January 27, 2025, the U.S. Senate voted to confirm Bessent’s nomination. (The same day, a man with multiple Molotov cocktails and a knife who intended to murder Bessent was arrested at the United States Capitol, an event seemingly lost in the noise of all the attempted assassination attempts against this administration).

The current administration has continued the policy of the previous administration of profligate peacetime federal deficit spending, some 6% of GDP annually, well above the 50-year average of about 3.8%. The only way to finance this spend is to sell more and more Treasury debt. But the more of that debt is out there, the more interest needs to be paid on it. By the mid-2030’s, interest payments will balloon to the point that they, plus mandatory transfer payments like Medicare/Medicaid/Social Security, will consume 100% of tax revenues, with nothing left for discretionary spending (including defense). Being the cabinet officer responsible for financing this mess now is sort of like being CFO of Lehman Brothers in 2008.

Which brings us to the ignominious market response to Bessent’s attempt at bond market intervention last week. As it has become more and more clear to the rest of the world that the U.S. has no intention of reining in its deficit, but instead hopes to deal with it by inflating away the value of the dollar, the market has started to demand greater compensation for holding long-term U.S. debt. If you are wondering why you now have to pay 6.65 % for a 30-year mortgage, wonder no longer. These high interest rates are making it all the more painful for Treasury to fund the deficit.

Secretary Bessent made a surprise announcement last Wednesday that his department would double its maximum purchase of older, less-liquid long-term bonds, from $2 billion per week to $4 billion. The stated purpose of this long-running buyback program is to retire hard-to-trade bonds and replace them with newer, more-liquid bonds. That’s fine, but this snap announcement shortly after its quarterly refunding plan broke with Treasury’s long-held strategy of making ‘regular and predictable’ announcements, and (together with statements by Bessant threatening further intervention) was widely seen as an attempt to talk down the long-term rates.

It worked for about one day. Long term yields initially dipped Wednesday morning by about 0.1%, but by Thursday they were about back to where they were before the announcement. Not only did traders realize the size of the intervention was far too small to move the enormous T-bond market (and would not net decrease T-bonds outstanding), but Treasury’s move became interpreted as a sign of desperation over funding the U.S. deficit. That vibe will not help bring down Treasury bond rates going forward. The value of the dollar dipped on world exchanges, while the price of alternatives such as gold and Bitcoin soared:

That is a chart of Bitcoin price in the past month. HODLers rejoice, the long crypto winter may be over…

Problems with Price Stability

Zachary BartschLeave a comment

Inflation targeting has been the goal of central banks for decades now, either implicitly or explicitly. Of course, they say that they have multiple goals, but they give most attention to the price level. That’s probably because it is easy to measure and more directly related to their activities than the unemployment rate and private financial activity. Price level targeting and inflation targeting are not quite the same thing – but I’m not in favor of either. This post describes what happens when the central bank targets the price level and offsets other changes in the economy in order to achieve their goal.

Volatile Capital Prices

If consumer prices are constant in the face of productivity shocks, then capital prices adjust instead. Capital is just goods that create other goods. If capital becomes more productive, then that means being able to produce more at given prices or being able to produce given quantities at lower costs. The demand for capital is ultimately determined by how profitable it is. This includes the costs of maintenance, the price of output, and the capital’s productivity. All else constant, changes in the revenue produced by the capital for the firm affect the equilibrium price of capital.  

If NGDP is constant and capital productivity improves, then output rises and consumer prices would fall. With unit price elasticity of output demanded, the total revenue of the firm remains constant and the nominal capital price does too. The 19th century gold standards had plenty of problems. But one feature was that long-run consumer prices fell and long-run capital prices were more stable.

If, instead, the Fed stokes NGDP to prop up consumer prices, then the firm’s revenue rises. Demand for the capital rises and so does its price. The opposite occurs when there is a negative productivity shock. So, capital price volatility is the trade-off for consumer price level stability if productivity changes. We can argue about which price volatility is better in regard to inequality, investment planning, financial stability, etc. But my strong low-hanging fruit point is that consumer price volatility just pushes the equilibrating mechanism to a different set of prices.

Volatile Income

As I said above, if the Fed wants stable consumer prices, then it must offset the impacts of productivity shocks with changes in aggregate demand – its only lever. Negative productivity shocks are offset with aggregate demand contractions.  

People act like they have adaptive expectations. Of course, people differ by how forward-looking they are. So, on average, their expectations are formed by what happened during the prior period or the last time that they observed a similar circumstance. Why does this matter?

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