I. INTRODUCTION In 1940, approximately 5% of men aged 20-64 were college graduates. By 1990, the fraction with a college degree had more than quadrupled to 22.6%. Conversely, more than 70% of men aged 20-64 had not finished high school in 1940. By 1990, the fraction of the male population who were high school dropouts had dipped below 20%. These changes imply that there has been an enormous increase in the supply of skilled workers in the U.S. economy over the past five decades. The magnitude of these changes also suggests that the composition of these groups, in terms of their underlying ability and talents, have also changed, making it difficult to compare these groups over time. In this article we focus on the expansion of college education. We ask whether the increase in the number of college graduates over time lead to a decline in the average ability of college graduates. Following Becker (1967), we introduce a simple model of human capital accumulation with individuals who differ in ability and borrowing costs. Under the assumption that the ability distribution is fixed and the more able attend college, we examine the conditions under which a rising share of college graduates leads to a decline in the average ability of the college-educated group. The relationship between the expansion of higher education and the average ability of college attendees was explored by Taubman and Wales (1972) in their well-known study. Putting together evidence from a variety of test score studies, they reported that the average aptitude of those who attended college actually rose relative to those who did not attend college. We take an alternative, more aggregate approach in examining the expansion of college education and average ability in this article. Using the 1940-90 Census, we compare across cohorts with different levels of educational attainment. We ask whether college graduates from more educated cohorts receive a smaller college premium, even controlling for the relative supply effect. Thus we do not observe changes in ability directly but infer changes in ability through changes in relative wages. There are several reasons why we view this alternative approach as useful. First, the test score studies are based on different tests administered in different states, which raises questions about the comparability of the results over time. Second, the test scores are often available only for those who finished high school. Because the selection of high school graduates is also changing, it is difficult to infer changes in ability of college graduates. Third, test scores typically have little explanatory power in earnings regressions, suggesting that other dimensions of ability are important for earnings determination. Finally, many of these studies refer to the first half of the twentieth century, whereas we extend the analysis to the more recent period. A number of recent papers (Murphy and Welch 1992; Katz and Murphy 1992; Topel 1997; Autor et al. 1998) have argued that the rapid increase in the share college graduates depressed college premiums in the 1970s. Welch (1979), Berger (1985) and Card and Eemieux (2000) show that these declines in college premiums were particularly associated with the Baby Boom cohorts who entered college in record numbers. In this article we examine to what extent these cohort effects may reflect a decline in quality associated with an accelerated pace of college attendance. To preview our results, we find a small and marginally significant cohort quality effect that suggests that a 10% increase in the cohort-specific college share leads to a 0.6% decline in the college premium, holding everything else constant. These results suggest that changes in cohort quality played a minimal role in the recent period, with relative supply and demand shocks accounting for most (87%) of the variation in relative wages. These small relative wage effects related to changes in ability are in line with evidence from test scores reported in Murnane et al. …
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Aug 11, 2009
Martin Falk + 1
Open Access