Why to get a 2nd diploma? Is it life-long learning or the outcome of state intervention in educational choices? Júlia Varga Budapest Corvinus University – Hungarian Academy of Sciences Institute of Economics AIEL XXII Conference of Labour Economics Napoli, September 2007

Motivation ● 2/3 of higher education graduates undertake further higher education studies within 5 years after graduation in Hungary and more than a half of them switch to another field of study ● changing the educational field may result in a waste of resources: total time spent in education increases, discipline specific human capital accumulated in higher education will also be lost ● what are the reasons for switching decisions

Earlier findings ● expected future earnings play a decisive role in the probability of selecting a specific field (Berger, 1988, 2003; Boudarbat, 2004) ● Students choose majors in which they have a comparative advantage (Paglin and Rufulo, 1990) ● trade-off between the economic returns and the perceived risk of failure related to majors (Rochat and Demeulemeester, 2001; Montmarquette et al., 2002) ● at individual level students make good predictions concerning their starting salaries (Hartog and Webbink, 2000) ● new information, false expectations, higher skill transferability may lead to further studies and switching (Borghans and Golsteyn,2005)

● students do not have free access to any field they want and observed choices, observed field specialization of students are not always their most preferred ones ● supply of places is not perfectly elastic, supply of higher education by field specialization adjusts to demand with a lag ● education policy, state intervention may also prevent or slow down the adjustment as in Hungary

Distribution of applications for 1 st degree with 1 st preference ranking and distribution of 2 nd qualifications by field specializations

● Does state intervention in the supply of higher education by field specializations play a role in probability of further higher education studies of graduates and in their decision of switching to another field of study? ● Do graduates who obtained their first diploma in other than their most preferred field specialization have higher odds of participating in further higher education studies and of switching to another field of study ?

Hungarian higher education admission system ● Ministry of education yearly determines number of state-funded full time places by levels of education, institutions, field specializations to prevent „over- supply” of graduates of certain filed specializations

- students are admitted to specific fields of studies -number of applications are not limited - students have to give their preference ranking -offers are made in accordance with preference ranking - if the student has an offer for an institution/field specialisation which he/she applied for with a better preference ranking he/she will be rejected automatically by the other institutions he/she applied for even if he/she achieved the minimum admission score of the latter institutions.

Assumptions students select a learning path, which maximizes their utility if they cannot enrol to their most preferred institution/field specialization because the number of places is restricted, they may choose a learning path, in the course of which they first obtain a degree in another institution/field where the transferable part of human capital resulting from their studies is also high after graduation they continue studying and switch to their preferred field specialization it might be a rational decision if the costs of the whole learning path are smaller than the expected life-cycle earnings gains

Data Hungarian Higher Education Graduates Survey of 1999 and 2000 (HHEGS) -1 year after graduation Follow-up of the Higher Education Graduates Survey (FHEGS) years after graduation HHEGS: labour market status, earnings, occupation characteristics, type of first degree: level of education, field specialization, home institution, year of admission FHEGS: labour market status, earnings, participation in further studies, type of further studies [level of education, field specialization, form of study (full or part time) form of financing, earnings Sample size: 3814

1.Determinants of further higher education studies The effect of early labour market success and obtaining a first degree not in the most preferred field specialization on „switching” and „deepening” switching – second degree in another field specialization than first degree deepening -second degree in the same field specialization as the first degree 2. The effect of obtaining a second diploma on labour market success of switchers and deepeners

Determinants of further higher education studies Method: multinomial probit model (does not impose IIA) 3 outcomes: (0) – no 2 nd diploma; (1) – switcher; (2) –deepener Y i =j if U ij =max(U ij,U ik ) for all k≠j, U ij = βj’x i + ε ij is the random utility associated with choice j, j=0,1,2 - the three learning states i - individuals x i - individual characteristics

Independent variables Early labour market success: - (log) earnings at 1st observation - Employed at 1st observation - Occupation at 1st observation closely related to type of 1st degree Type of 1st degree - College - Field specialisation of 1st diploma (Extended model) Proxy for having 1st degree in most preferred field - Admission rate of institution/field specialization of 1st diploma Male Residence Budapest Graduated in 1998

● No information on most preferred field specialization/institution ● Proxy variable- admission rate (admitted as a percentage of total applicants) of home institution/field specialization of the individual in the year of his admission

● lower admission rate - more selective institution/field specialisation - only applicants who had ranked the institution/field specialization at the top of their preference list were able to gain admission - observed institution/field specialization and most preferred choices are close to each other ● higher admission rate - less selective institution/field specialization- applicants who had put the institution/field specialization to the end of their preference ranking list, were also able to gain admission observed institution/field specialization and the most preferred choice of the graduates are far from each other

Results – marginal effects (dy/dx ) Base modelExtended model SwitchingDeepeningSwitchingDeepening Early labour market success (log) Earnings at 1st observation * ** Employed at 1st observation Occupation at 1st observation closely related to type of 1st degree Admission rate of institution/field specialization of 1st diploma * *1.1599* Significant at 1 % level

2) Effect of obtaining a second diploma on labour market success how does obtaining a second diploma in the same field specialization or in another field specialization change labour market success of young employees compared to what they would have experienced had they not obtained a 2nd diploma

Method : Propensity score matching-average treatment on the treated (ATT) method E(Y 1 |D=1) – E(Y 0 |D=1) P(X)=Pr(D=1|X)=E(D|X) E[Y 1 |D=1,P(X)]-E[Y 0 |D=0,P(X)] D –treatment Y – outcome variable X –observable characteristics

2 models i) switchers – no 2 nd diploma ii) deepeners – no 2 nd diploma Propensity score – probit model Matching – Kernel matching (ATTK) - Stratification matching (ATTS) Outcome variables: - earnings at 2 nd observation - the difference between earnings at the 2 nd and 1 st observation

SWITCHERS (log) earnings at 2nd observation ATTtStandard errors No. of treated OLS N=1473 ATTS Stratification method ATTK Kernel-based matching ( log) earnings difference between 2nd and 1st observation OLS N=1487 ATTS Stratification method ATTK Kernel-based matching Results

DEEPENERS (log) earnings at 2nd observation ATTtStandard errors No. of treated OLS N=1341 ATTS Stratification method ATTK Kernel-based matching ( log) earnings difference between 2nd and 1st observation OLS ATTS Stratification method ATTK Kernel-based matching Results

Conclusions Graduates, who obtained their first qualification not in their most preferred field specialization, have higher odds of switching to another field specialization after graduation switchers lose a part of their accumulated human capital, their earnings in the short run become lower than they would be hadn’t they obtained a 2nd degree the inflexibility of the admission quotas by field specializations results in the extension of the lengthening of the duration of studies state intervention results in the increase of costs of higher education due to longer studies