Job Market Paper
In many developed economies, there is both a high share of students selecting into higher education (HE) and a large share of graduates who end up working in non-graduate occupations. Does this mean that the level of education is inefficiently high? In this paper, I propose an explanation of overeducation based on the observation that the causal effect of HE on human capital is both heterogeneous and imperfectly observed by the student. I propose a model in which workers first decide whether to invest in higher education on the basis of limited information, and then match to jobs in a labour market. In this setting, uncertainty about returns generates individual education mismatch, while endogenous education choice in a matching market generates aggregate inefficiency in education choice. This inefficiency is due to a hold-up externality which causes under-investment and a congestion externality which causes over-investment. These externalities offset each other so in general, it is ambiguous whether the level of education is too high or low. Structurally estimating my model on UK data, I calculate that 18.2% of the population are over-educated and 14.7% are under-educated. Simulating the model under the estimated parameters, I find that policy-makers can improve aggregate welfare of workers and firms by slightly reducing HE share by 1.6 percentage points, but can increase aggregate workers' welfare further by decreasing HE share more substantially at firms' expense.
Presented at the 10th Warwick Economics PhD Conference (2022), University of Surrey PhD Workshop in Microeconomics (2022), Young Economist Symposium (2022), Asian & Australasian Society of Labour Economics Conference (2022), European Winter Meeting of the Econometric Society (2022)
The Butcher, the Brewer, or the Baker: The Role of Occupations in Explaining Wage Inequality - Joint with Luke Heath Milsom (updated: 12 January 2022)
Google does not pay its canteen chefs the same premium as it does its software engineers; there is heterogeneity in pay premia within a firm. To study the implications of this observation, we estimate a two-way, worker-job, fixed effect model that builds upon the canonical model by Abowd et al. (1999) by allowing for within-firm heterogeneity. Estimating our model on UK administrative data, we find that even if workers, and firms, were identical, 25% of current log-wage variance would remain, due solely to heterogeneity between occupations. We further document that worker heterogeneity accounts for a relatively small proportion of log-wage variance, and that between-firm pay heterogeneity is more important in higher-wage occupations and larger labour markets.
Presented at the 9th Warwick Economics PhD Conference (2021), Royal Economics Society Annual Conference (2022)
Determinants of University Subject Choice in the UK - Draft available on request (updated: 22 February 2021)
Students applying to British universities have to choose to specialise in a particular subject at the point of application. What factors play into their choice of subject of study? I analyse students' subject choices in university using a cohort panel dataset (LSYPE), and in particular, whether those choices respond to their expected wages conditional on studying the subject. I find that earnings, defined as earnings at age 25 or as lifetime earnings, are positively associated with choice probability, although the quantitative impact of expected earnings on subject choice is small. I also find that there are substantial differences in choice probability between students of different sexes, ethnicities and to a lesser extent, socio-economic classes.
How Informative are Grades about Labour Market Outcomes?