Does the labour market value field of study specific knowledge? An alignment score based approach

Abstract

Using a sample of bachelor degree holders from the Canadian Census, this paper estimates the earnings premium that a university graduate receives from working in an occupation that requires knowledge that is related to their field of study. This is accomplished by developing an alignment score which measures the similarity between the knowledge requirements of an individual’s actual occupation, and the knowledge requirements of the occupations that their field of study trains individuals for. While controlling for field of study and occupation fixed effects, the results indicate that a one standard deviation improvement in the knowledge-alignment between one’s occupation and field of study produces an earnings premium of approximately 4.3%. This indicates that well-aligned graduates earn more than graduates from the same field of study who work in otherwise similar paying occupations that are less closely aligned with the field of study.