You are here

Applying Economics to Other Fields

25 April, 2016 - 09:12

Suppose that you are considering something other than a career in economics. Would choosing to study economics help you?

The evidence suggests it may. Suppose, for example, that you are considering law school. The study of law requires keen analytical skills; studying economics sharpens such skills. Economists have traditionally argued that undergraduate work in economics serves as excellent preparation for law school. Economist Michael Nieswiadomy of the University of North Texas collected data on Law School Admittance Test (LSAT) scores for undergraduate majors listed by 2,200 or more students taking the test in 2003. Table 1.1 gives the scores, as well as the ranking for each of these majors, in 2003 and in two previous years in which the rankings were compiled. In rankings for all three years, economics majors recorded the highest scores.

Here are the average LSAT scores and rankings for the 12 undergraduate majors with more than 2200 students taking the test to enter law school in the 2003–2004 academic year.

Table 1.1 LSAT Scores and Undergraduate Majors

Major field

LSAT average 2003-2004

2003-2004 Rank

1994-1995 Rank

1991–1992 Rank

Economics

156.6

1

1

1

Engineering

155.4

2

4

2

History

155

3

2

3

English

154.3

4

3

4

Finance

152.6

5

6

5

Political science

152.1

6

9

9

Psychology

152.1

7

7

8

Accounting

151.1

8

8

6

Communications

150.5

9

10

10

Sociology

150.2

10

12

13

Bus. Administration

149.6

11

13

12

Criminal Justice

144.7

12

14

14

 

Source: Michael Nieswiadomy, “LSAT Scores of Economics Majors: 2003–2004 Class Update,” Journal of Economic Education, 37(2) (Spring 2006): 244–247 and Michael Nieswiadomy, “LSAT Scores of Economics Majors” Journal of Economic Education, 29(4) (Fall 1998): 377–379.

Did the strong performance by economics, engineering, and history majors mean that training in those fields sharpens analytical skills tested in the LSAT, or that students with good analytical skills are more likely to major in them? Both factors were probably at work. Economics clearly attracts students with good analytical skills—and studying economics helps develop those skills.

Economics majors shine in other areas as well. According to the Bureau of Labor Statistics Occupational Outlook Handbook, a strong background in economic theory, mathematics, and statistics provides the basis for competing for the best job opportunities, particularly research assistant positions, in a broad range of fields. Many graduates with bachelor’s degrees will find good jobs in industry and business as management or sales trainees or as administrative assistants. Because economists are concerned with understanding and interpreting financial matters, among other subjects, they will also be attracted to and qualified for jobs as financial managers, financial analysts, underwriters, actuaries, securities and financial services sales workers, credit analysts, loan and budget officers, and urban and regional planners.

Table 1.2 shows average yearly salary offers for bachelor degree candidates for May 2006 and the outlook for related occupations to 2014.

Table 1.2 Average Yearly Salary Offers, May 2006 and Occupational Outlook 2004–2014, Selected Majors/Occupations

Undergraduate major

Average $ Offer May, 2006

Projected % Change in Total Employment in Occupation 2004– 2014

Computer Engineering

$54,200

10.1

Electrical/Electronic Engineering

54,053

11.8

Computer Science

50,892

25.6

Accounting

46,188

22.4

Economics and Finance

45,058

12.4

Management Information Systems

44,755

25.9

Logistics and Materials Management

43,426

13.2

Business Administration

40,976

17.0

Environmental Sciences (including forestry and conservation science)

39,750

6.3

Other Business Majors (e.g., Marketing)

37,446

20.8

Human Resources (incl. Labor Relations)

36,256

15.9

Geology and Geological Sciences

35,034

8.3

Sociology

33,752

4.7

Political Science/Government

33,151

7.3

Liberal Arts & Sciences (general studies)

32,627

na

Public Relations

32,623

21.7

Special Education

31,817

23.3

Elementary Education

31,778

18.2

Foreign Languages

31,364

na

Letters (incl. English)

31,204

20.4

Other Social Sciences (Including Criminal Justice and History)

30,788

12.3

Psychology

30,308

9.9

Pre-elementary Education

27,550

22.4

Social Work

25,865

19.6

Visual and Performing Arts

21,726

15.2

 

Sources: National Association of Colleges and Employers, Salary Survey, Spring 2006 http://naceweb.org; Bureau of Labor Statistics, 2006–2007 edition of the Occupational Outlook Handbook; Occupational Employment, Training, and Earnings: Educational Level Report (May, 2006) URL: http://data.bls.gov/oep/noeted/empoptd.jsp (note: na = not reported; that is, no specific occupation was reported in BLS report; Other business majors, Other social sciences, Social work (including Sociology), and Environmental Sciences are weighted averages of various disciplines, calculated by authors.)

One’s choice of a major, or minor, is not likely to be based solely on considerations of potential earnings or the prospect of landing a spot in law school. You will also consider your interests and abilities in making a decision about whether to pursue further study in economics. And, of course, you will consider the expected benefits of alternative courses of study. What is your opportunity cost of pursuing study of economics? Does studying more economics serve your interests and will doing so maximize your satisfaction level? These considerations may be on your mind as you begin to study economics at the college level and obviously students will make many different choices. But, should you decide to pursue a major or minor in economics, you should know that a background in this field is likely to serve you well in a wide range of careers.

KEY TAKEAWAYS

Economists focus on the opportunity costs of choices, they assume that individuals make choices in a way that maximizes the value of an objective defined in terms of their own self-interest, and they assume that individuals make those choices at the margin.
Economics is divided into two broad areas: microeconomics and macroeconomics.
A wide range of career opportunities is open to economics majors. Empirical evidence suggests that students who enter the job market with a major in economics tend to earn more than do students in most other majors. Further, economics majors do particularly well on the LSAT.

TRY IT!

The Department of Agriculture estimated that the expenditures a middle-income, husband–wife family of three would incur to raise one additional child from birth in 2005 to age 17 would be $250,530. In what way does this estimate illustrate the economic way of thinking? Would the Department’s estimate be an example of microeconomic or of macroeconomic analysis? Why?

Case in Point: The Financial Payoff to Studying Economics

College economics professors have long argued that studying economics is good preparation for a variety of careers. A recent study suggests they are right and that studying economics is even likely to make students more prosperous. Students who major in economics but did not pursue graduate work are likely to earn more than students in virtually every other college major. Students who major in economics and then go on to law school or an MBA program are likely to earn more than students who approach those areas of study having majored in most other areas.

Economists Dan A. Black, Seth Sanders, and Lowell Taylor used the 1993 National Survey of College Graduates, which included more than 86,000 college-educated workers between the ages of 25 and 55 that asked what field they had majored in. They then controlled for variables such as gender, race, and ethnicity. They found that students who had not done graduate work and had majored in economics earned more than students in any other major except engineering. Specifically, economics majors earned about 13% more than other social sciences majors, 11% more than business administration majors, and about the same as natural science and accounting majors. The economics majors in their survey, like those who majored in other social sciences and business administration and unlike those who majored in engineering or accounting, were spread out over a wide range of occupations but with many in management positions.

Based on the survey they used, over 40% of economics majors went on to earn graduate degrees, many in law and business. Economics majors ranked first in terms of wages, as compared to other law school graduates with the 12 most common pre-law majors (including such majors as business administration, finance, English, history, psychology, and political science). MBA graduates who had majored in economics earned more than those who had majored in any other field except chemical engineering. Specifically, undergraduate economics majors with MBAs earned about 15% more than those who had majored in other disciplines represented in the survey, including business-related majors.

It is remarkable that all of the business-related majors generated salaries much lower than those earned by economics majors with an MBA. One could argue that this reflects self-selection; that students who major in economics are simply brighter. But, students who major in physics have high SAT scores, yet they, too, earned wages that were about 20% lower than MBA students who had majored in economics. This finding lends some credence to the notion that the marketplace rewards training in the economic way of thinking.

Source: Dan A. Black, Seth Sanders, and Lowell Taylor, “The Economic Reward for Studying Economics,” Economic Inquiry, 41(3), July 2003, 365–377.

ANSWER TO TRY IT! PROBLEM

The information given suggests one element of the economic way of thinking: assessing the choice at the margin. The estimate reflects the cost of one more child for a family that already has one. It is not clear from the information given how close the estimate of cost comes to the economic concept of opportunity cost. The Department of Agriculture’s estimate included such costs as housing, food, transportation, clothing, health care, child care, and education. An economist would add the value of the best alternative use of the additional time that will be required for the child. If the couple is looking far ahead, it may want to consider the opportunity cost of sending a child to college. And, if it is looking very far ahead, it may want to consider the fact that nearly half of all parents over the age of 50 support at least one child over the age of 21. This is a problem in microeconomic analysis, because it focuses on the choices of individual households.