The Effect of Changes in the Skill Premium on College Degree Attainment and the Choice of Major

We study the impact of financial incentives on higher education decisions and the choice of major. We rely on a reform whereby Israeli kibbutzim shifted from their traditional policy of equal sharing to productivity-based wages, using for identification the staggered implementation of this reform. In this setting of very low initial returns to education, we find that the dramatic increase in the rate of return and its sharp variation across fields of study led to a large increase in the probability of receiving a bachelor’s degree, especially in STEM fields of study that are expected to yield higher financial returns.