Question

The Best and Worst College Degrees by Salary Business administration is always a strong contender for honors as the most popular college major. This is no surprise since students think business is the way to make big bucks. But is business administration really as lucrative as students and their parents believe? Nope. In a new survey by PayScale, Inc. of salaries by college degree, business administration didn't cven break into the list of the top 10 or 20 most lucrative college degrees. A variety of engineering majors claim eight of the top 10 salary spots with chemical engineering \((\$ 65,700)\) winning best for starting salaries. Out of 75 undergrad college majors, business administration ( \(\$ 42,900\) ) came in 35 th, behind such degrees as occupational therapy \((\$ 61,300),\) information technology \((\$ 49,400),\) and economics \((\$ 48,800)\) Source: moneywatch.com, July 21,2009 a. Why do college graduates with different majors have drastically different starting salaries? b. Draw a graph of the labor markets for economics majors and business administration majors to illustrate your explanation of the differences in the starting salaries of these two groups.

Short answer

Graduates in higher demand fields with fewer graduates, like engineering, have higher starting salaries compared to fields with higher supply like Business Administration. Graphs show supply-demand balance influences salary levels.

Step-by-step solution

Analyze Factors Affecting Starting Salaries

Consider the reasons why different college majors have varying starting salaries. Factors may include the demand for specific skills in the job market, the supply of graduates in certain fields, required education and training, and potential career advancement opportunities.

Identify High and Low Salary Majors

In the given data, identify which college majors have high and low starting salaries. For example, Chemical Engineering has one of the highest starting salaries \(\$ 65,700\), whereas Business Administration has a lower starting salary \(\$ 42,900\).

Understand Labor Market Dynamics

Assess how labor market dynamics contribute to the differences in starting salaries. Specifically, focus on the concepts of supply and demand. High-demand fields with fewer graduates, like certain engineering disciplines, tend to offer higher starting salaries. Conversely, fields with a higher supply of graduates and lower demand, such as Business Administration, typically offer lower starting salaries.

Draw Graphs for Economics and Business Administration

Draw two separate labor market graphs for Economics and Business Administration. On each graph, put the x-axis as the quantity of labor (number of graduates) and the y-axis as the starting salary. For Economics, indicate a relatively higher demand and supply balance, leading to a moderate starting salary. For Business Administration, show a higher supply of graduates relative to demand, resulting in a lower starting salary.

Graph Explanation

Explain the graphs. For Economics majors, illustrate that the equilibrium between supply and demand yields a higher starting salary \(\$ 48,800\). For Business Administration, indicate that a larger supply of graduates compared to demand leads to lower starting salaries \(\$ 42,900\).

Key concepts

Labor Market Dynamics

Labor market dynamics refer to the ever-changing variables in the job market. These include the number of available jobs, the number of job seekers, and the skills that employers need. The interaction between these factors affects job availability and salaries.

One key factor is the demand for specific skills. High-demand skills often command higher salaries because employers are competing to attract talent. For example, engineering skills, particularly in chemical engineering, are highly sought after, resulting in starting salaries around \(\$ 65,700\).

On the supply side, the number of graduates in a particular field influences salaries. The more graduates there are, the higher the competition for jobs. For instance, Business Administration has a high supply of graduates, reducing starting salaries to around \(\$ 42,900\).

Understanding labor market dynamics helps explain why different college majors yield different starting salaries. High-demand fields with fewer graduates typically offer more lucrative starting salaries.

Supply and Demand

Supply and demand are fundamental economic principles that also apply to the job market. The supply of labor refers to the number of job seekers with certain qualifications. The demand for labor is the number of job openings for those qualifications.

When the supply of graduates in a field is high but the demand for those skills is low, starting salaries tend to decrease. This is seen in Business Administration, where many graduates vie for fewer positions, resulting in starting salaries of approximately \(\$ 42,900\).

Conversely, when the demand for a specific skill set is high but the supply of graduates is low, starting salaries increase. This is evident in the engineering fields, particularly Chemical Engineering, where starting salaries are approximately \(\$ 65,700\). These dynamics are shown in labor market graphs, with the equilibrium point determining the starting salary.

Supply and demand balances explain the variance in starting salaries among different college degrees.

Starting Salaries

Starting salaries are the initial pay that college graduates receive when they enter the workforce. These salaries vary widely depending on the field of study. Understanding what influences these salaries can help in making informed decisions about college majors.

Several factors affect starting salaries:

• Field of Study: Majors in high-demand areas like engineering tend to have higher starting salaries compared to fields with lower demand.
• Market Demand: The need for certain skills can drive up starting salaries. For example, majors with skills that are in short supply but high demand can command higher pay.
• Competition among Graduates: When a field has many graduates but limited job openings, starting salaries tend to be lower.

Analyzing starting salaries helps students understand the potential financial outcomes of their majors. It also highlights the importance of aligning education choices with market demands.