College Wage Premium Research Articles

College wage premiums and skills: a cross-country analysis

Workers with a college degree earn substantially more than workers with no such degree. Using recent data from 22 OECD (Organization for Economic Cooperation and Development) countries, we estimate this college wage premium at 28 per cent for male full-time working employees, on average, ranging from 18 per cent in Sweden to 50 per cent in the Slovak Republic. This premium is largely explained by the higher skill levels of graduates from higher education combined with their use of these skills at work, as well as the match with job requirements for this skill proficiency and skill use. We find no effect of labour market institutions (e.g. the employment protection legislation or the coverage rate) on cross-country differences in the college wage premium. However, we find that cross-country variation in this premium is related to the relative supply of higher educated workers. Moreover, we find evidence that cross-country differences in the college wage premium are related to the degree to which educational credentials signal skills.

Trends in Firm Entry and New Entrepreneurship in Canada

Since the early 1980s, the firm entry rate and the rate of new entrepreneurship have trended downward in Canada. This article documents these trends and discusses potential explanations. A shift-share analysis suggests that industrial and demographic structure changes cannot explain these long-term trends, although population aging accounts for part of the decline in new entrepreneurship since around 2000. The article discusses other factors that could contribute to the downward trends: increased industrial concentration, changing labour market conditions, increased college wage premium, higher student debt, and government regulation. Some of these may be important, but more research is needed before firm conclusions can be reached.

Offshoring and the Skill‐premium: Evidence from Individual Workers’ Data

AbstractDuring the 1980s the United States has experienced an increase in both international trade and the skill‐premium. The association between these two phenomena has proven elusive in the early empirical literature on the subject. Indeed, the consensus among labour economists seems to be that trade has not been the main cause of such increase in the skill‐premium. This view has been challenged by Feenstra and Hanson (1999, Quarterly Journal of Economics, 114, 3, 907) who find that offshoring sizably affects the skill‐premium. I revisit this debate using individual workers’ data from the March Current Population Survey combined with industry‐level trade data. This strategy improves upon the work of Feenstra and Hanson who do not control for the demographic characteristics of the labour force. In my results, offshoring can explain between 9 and 30 per cent of the increase in the college wage premium, relative to high‐school workers. In addition, I find that offshoring can explain 21 per cent of the increase in the relative employment of skilled labour. These results suggest that offshoring may play an important role in the increase in the relative demand of skilled workers.

On the Optimal Provision of Social Insurance

In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.

Is Korea Number One in Human Capital Accumulation?: Education Bubble Formation and Its Labor Market Evidence

This paper proposes a new conceptual framework of “education bubble” in analyzing the human capital investment and formation. We apply this concept to the Korean experience. Sixty years ago Korea was destitute not only of income but also of all sorts of education, but now it is one of the leading countries in educational attainment as well as in other conventional measures of human capital investment indices such as the PISA tests and the number of researchers. We argue, however, that such phenomenal expansion of these quantitative measures involved the problems of enormous burden of private tutoring and the mass production of low-quality higher education institutions, which did not contribute to increasing the effective unit of human capital particularly since the 1990s. We find that despite rapid increase in private educational expenditure for college entrance, the college wage premiums for the bottom two decile groups of 4-year college graduates and the bottom half of 2-year college graduates are both negative. This striking evidence from the microeconomic data suggests that such phenomenal expansion in aggregate quantity of human capital indices of Korea could be a bubble. We learn from this evidence that the quantitative expansion of education may not be good enough for sustainable development, which would guide the design of human capital policy not only for Korea but also for other developing countries.

The Making of Higher Education Inequality

We extend the theoretical contributions of Alon (2009) by proposing and testing two hypotheses about the context dependence of inequality of educational opportunity (IEO). Alon offers a model of IEO that incorporates class adaptation and organizational exclusion as two test-score-based mechanisms that perpetuate class inequality. She hypothesizes that the changing level of IEO depends on trends in competition. Through a secondary analysis of Alon’s numerical results, we clarify her results and demonstrate that the causal structure of IEO (e.g., the explanatory roles of adaptation and exclusion) depends on trends in competition and college selectivity. Additionally, changes in competition for college admission from 1972 to 1992 had little to do with enrollment rates, but appear to be driven largely by changes in college wage premiums.

Skills and the evolution of wage inequality

This paper studies wage inequality in the United States between 1980 and 2010 in a framework that accounts for changes in the employment of physical and cognitive skills and their returns. I find that the secular rise in the employment of cognitive skills is largely accounted for by labour force composition changes in shares of gender–education groups rather than changes that occur within these groups. Average employed skills differ greatly across groups, but over time their average employed cognitive skills have remained approximately constant. Returns to cognitive skills increased very sharply for high skill levels, more gradually around mean levels, and decreased at low levels. Returns to physical skills generally declined. These trends account for approximately 63% of the increase in the college wage premium, with changes in returns to cognitive skills playing a dominant role.

Student abilities during the expansion of US education

The US experienced two dramatic changes in the structure of education in a 50 year period. The first was a large expansion of educational attainment; the second, an increase in test score gaps between college-bound and non-college-bound students. This paper documents the impact of these two trends on the composition of school groups by ability and the importance of these composition effects for wages. The main finding is that there is a growing gap between the abilities of high school and college-educated workers that accounts for one-half of the college wage premium for recent cohorts and for the entire rise of the college wage premium between the 1910 and 1960 birth cohorts.

Education, mobility and the college wage premium

Motivated by large educational differences in geographic mobility, this paper considers a simple dynamic extension of Roy׳s (1951) model and analyzes it using new evidence on net versus excess mobility and the individual-level relationship between mobility and wages. According to the model, the dispersion of a labor income shock specific to a worker-location match is greater for more educated workers and accounts for large educational differences in mobility. In the model, labor mobility raises both the average wage and the college wage premium, a prediction consistent with differences between Europe and the U.S.

College Wage Premium Over Time: Trends in Europe in the Last 15 Years

While there has been intense debate in the empirical literature over the evolution of the college wage premium in the United States, its evolution in Europe has received little attention. This paper investigates the causes of the evolution of the college wage premium in 12 european countries from 1994 to 2009. I use cross country variation in relative supply, demand, and labour market institutions to examine their effects on the trend in wage inequality. I address possible concerns of endogeneity of the relative supply using an IV strategy exploiting the differential legislations of university autonomy and their variations over time. In explaining the evolution of wage inequality, both market and non-market factors matter: an increase in relative supply decreases the college wage premium; the minimum wage also has a sign?cant and negative effect.

Spatial changes in labour market inequality

We study spatial changes in labour market inequality for US states and MSAs using Census and American Community Survey data between 1980 and 2010. We report evidence of significant spatial variations in education employment shares and in the college wage premium for US states and MSAs, and show that the pattern of shifts through time has resulted in increased spatial inequality. Because relative supply of college versus high school educated workers has risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence and increased inequality of spatial relative demand. Bigger relative demand increases are observed in more technologically advanced states that have experienced faster increases in R&D and computer usage, and in states where union decline has been fastest. Finally, we show the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also in a higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.

Spatial Changes in Labour Market Inequality

We study spatial changes in labour market inequality for US states and MSAs using Census and American Community Survey data between 1980 and 2010. We report evidence of significant spatial variations in education employment shares and in the college wage premium for US states and MSAs, and show that the pattern of shifts through time has resulted in increased spatial inequality. Because relative supply of college versus high school educated workers has risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence and increased inequality of spatial relative demand. Bigger relative demand increases are observed in more technologically advanced states that have experienced faster increases in R&D and computer usage, and in states where union decline has been fastest.Finally, we show the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also in a higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.

The College Wage Premium

The return on educational investments has risen substantially in the past 30 years. While the primary focus has been on the college wage premium, new evidence shows that the value of going to college is affected by a host of other important educational decisions, each of which has a potential large effect on future earnings. This Commentary examines the impact of two of these other decisions on earnings: the choice of a college major and the pursuit of an advanced degree. In some cases, differences in the college major premium are as large as the college wage premium itself.

Welfare Effects of Privatizing Public Education When Human Capital Investments Are Risky

In an overlapping-generations model with risky human capital investment, borrowing constraints, and intergenerational transmission of abilities, I examine the effects of a change from publicly to privately funded college education. I find that from this reform, college graduates are better off compared to other workers since the college wage premium increases by around 50 percent. The reform deteriorates aggregate efficiency by (i) enforcing liquidity constraints, (ii) abolishing public insurance provision against educational risk, and (iii) increasing utility costs of college education via intergenerational spillovers. A success-dependent student loan system can offset efficiency losses but fails to generate efficiency gains.

The Phantom Gender Difference in the College Wage Premium

Abstract A growing literature seeks to explain why so many more women than men now attend college. A commonly cited stylized fact is that the college wage premium is, and has been, higher for women than for men. After identifying and correcting a bias in estimates of college wage premiums, I find that there has been essentially no gender difference in the college wage premium for at least a decade. A similar pattern appears in quantile wage regressions and for advanced degree wage premiums.

The Phantom Gender Difference in the College Wage Premium

A growing literature seeks to explain why so many more women than men now attend college. A commonly cited stylized fact is that the college wage premium is, and has been, higher for women than for men. After identifying and correcting a bias in estimates of college wage premiums, I find that there has been essentially no gender difference in the college wage premium for at least a decade. A similar pattern appears in quantile wage regressions and for advanced degree wage premiums.

The Impact of Bologna Process on the Graduate Labour Market: Demand and Supply

The Bologna process inspired the Italian 3+2 reform of the university system which constitutes a big increase in the supply of college graduates. This paper is a preliminary attempt to identify the effects of the reform on (i) the relative probability (relative to nongraduates) of employment of college graduates in the age range 25-34; (ii) their quality of employment measured with the relative probability of being employed with a temporary contract; (iii) the college wage premium. Using administrative data to identify the gradual introduction of the reform in different universities, we find that the reform increases significantly the relative employment of graduates except for women in the South where the rapid increase of female post-reform graduates has not been absorbed by the weak labour market. Finally we find that post-reform college graduates have a significantly lower college premium with respect to high school graduates than pre-reform graduates.

Nonparametric Estimation of Labor Supply and Demand Factors

This article derives sharp bounds on labor supply and demand shift variables within a nonparametric simultaneous equations model using only observations of the intersection of upward sloping supply curves and downward sloping demand curves. Furthermore, I demonstrate that these bounds tighten with the imposition of plausible assumptions on the distribution of the disturbance terms. Using Katz and Murphy’s (1992) panel data on wages and labor inputs, I estimate these bounds and assess the supply and demand factors that determine changes within male–female wage differentials and the college wage premium.

Does College Education Pay? Evidence From The NLSY-79 Data

This study examines if the college wage premium favoring college graduates still exists. The NLSY-79 data is employed. The sample includes individuals who received their high school degree and college degree in 1980 and 1981. These individuals were followed until the year 2004. A cross sectional regression model was estimated for the years 1982, 1994, and 2004 and found that education, occupation, and gender were the primary determinants of wages. The income gap between college educated workers and high school educated workers has widen over time. Most interestingly, it is the stagnation of high school educated workers that accounts for the gap.

The Fortune's of One's Birth: Relative Cohort Size and the Youth Labor Market in the United States

Using two different measures of relative cohort size-one indicating the size and placement of an individual's own birth cohort, and the other, the ratio of young to prime age adults in the United States. in that year-it has been possible to isolate strong effects of the population age structure on wages in the United States over the past 33 years. These effects have been strong enough that virtually all of the observed change in the experience premium, and a substantial proportion of the changes in the college wage premium, can be explained by the relative cohort size variables alone. Even changes in the amount of within-group variance in wages appear to be largely a function of changing age structure, and absolute wage levels have been strongly affected by these demographic changes, suggesting that population growth can have positive effects on the economy.