Econometrics is a field of study so cutting edge, most people don’t even know how to pronounce it: uh kaa nuh meh truhks.
It’s the branch of economics that combines mathematical and statistical methods to analyze economic data. It applies theoretical models to real-world economic issues to provide useful tools to guide decision making. Econometrics is frequently used by governmental policymakers, but it can play an important role in private corporations as well.
This article explores the field of econometrics, its importance and the various career opportunities available to those who pursue this field of study.
What is econometrics?
Econometrics is a combination of three different fields: economics, statistics and mathematics. It is a quantitative analysis of economic phenomena that uses mathematical models to test economic theories and hypotheses. The main goal of econometrics is to provide a framework for analyzing and interpreting economic data to better understand how the economy works.
What is the difference between economics and econometrics?
Economics is the study of how societies allocate resources, including labor, capital and raw materials. It is a social science that focuses on the behavior and interactions of individuals, groups and organizations.
Econometrics, on the other hand, represents a more mathematical approach to the study of economics. It consists of tools used by economists to analyze and interpret economic data to better understand how the economy works.
“What makes econometrics unique is the types of questions it asks,” explains Dr. Siyan Wang, a professor of economics at the Lerner College of Business and Economics at the University of Delaware. Whereas economists may inquire “about the relationship between interest rates and the housing market, someone who uses econometrics wants to determine how much the price of houses might change if the interest rate is raised by exactly 1%.”
What do econometrics practitioners do?
People who work in econometrics are called econometricians. They use statistical methods to analyze economic data and develop models that can be used to predict economic trends and behavior.
Econometricians may work for private companies, government agencies or academic institutions. They may be involved in research, data analysis, forecasting or policy analysis. They may also be involved in developing new econometric models or testing existing models to improve their accuracy and reliability.
Jobs in econometrics
The study of econometrics developed highly specialized skills that can offer high-earning career opportunities. Graduates with an econometrics degree can work in a variety of fields, including finance, business, government and academia. Some of the most common jobs available to econometrics graduates include:
- Financial Analyst: Financial analysts use econometric models to analyze financial data and make investment recommendations. They may work for investment banks, hedge funds or other financial institutions.
- Economist: Economists study economic data to develop theories and models that can be used to predict economic trends and behavior. They may work for government agencies, research institutions or private companies.
- Data Scientist: Data scientists use statistical methods to analyze large data sets and develop models that can be used to predict trends and behavior. They may work for tech companies, consulting firms or government agencies.
- Market Researcher: Market researchers use econometric models to analyze consumer behavior and develop marketing strategies. They may work for advertising agencies, market research firms or corporate marketing departments.
Earnings for M.S. and PHD in Econometrics
Income numbers for econometrics are generally differentiated by graduate degree. Although experience can affect salary, zippia.com calculates the average median income for graduate degrees as follows:
- M.S. in econometrics, such as Lerner’s M.S. in economics and applied econometrics: $85,740
- Ph.D. focused on econometrics research, similar to Lerner’s Ph.D. in economics: $114,807
Location significantly impacts salary as well. The median incomes of those working in the lowest paying regions of the U.S. are less than half of those employed in the highest earning regions. Four of the five highest paying regions are on the East Coast: New York, Vermont, Maryland and Virginia (the D.C. Metro Area). This is likely because government agencies readily employ econometricians.
If you’re considering a degree in econometrics, location could be key for your future earning potential. By attending a school strategically located between New York City and Washington D.C., students have access to the highest paying employment opportunities while enjoying a lower cost of living.
For example, the cost of living at the University of Delaware is roughly 26% less than the D.C. Metro area and 36% cheaper New York City, according to salary.com. At the same time, travel time to these areas is reasonable. In fact, while President Biden was a senator, he commuted from northern Delaware to D.C. every day.
Should I study econometrics?
Only you know which degree is right for you, but you might consider econometrics if you enjoy statistics and economics. Dr. Wang says she loves econometrics because, “It’s the perfect combination of art and science.” The mathematical component of econometrics readily appeals to the scientifically minded, and modeling the complexity of economic variables entails creative problem solving.