Education Wage Premium Research Articles

Labour market inequality: a comparative political economy perspective

Abstract Large and rising earnings and employment inequalities in countries such as the USA and the UK pose fundamental questions for social scientists and challenges for policymakers. Mainstream economists have explained these outcomes mainly in terms of competitive market forces, particularly the mismatch between technology-driven demands for skills and those supplied by workers. In contrast, political economy perspectives focus on employer–employee bargaining power, driven by the monopsony power of firms and declining institutional and policy protections for workers. We critically assess the evidence on the education wage premium and employment polarization used to support the competitive market explanation for US wage inequality. We then show that the incidence of decent pay for young less-educated workers varies sharply across similarly rich countries and that new indices of institutional bargaining power closely correspond to differences in pay distributions but are uncorrelated with conventional measures of employment performance. We conclude that well-designed institutional and policy changes can substantially promote shared growth and the well-being of working families.

Indicators of higher education quality and salaries of university graduates in Russia

This paper analyzes the relationship between the indicators of higher education quality and the salaries of university graduates in Russia. Based on the data from the longitudinal study ‘Trajectories in Education and Careers’, it is shown that graduates of highly selective universities, higher education institutions which participate in the excellence initiatives, or those awarded a special status (for example, participants of the ‘5–100′ project and National Research Universities) receive a higher wage premium for education compared to other graduates. This conclusion is consistent with the human capital theory and signaling theory. Differences in wages depending on the field of study were also found. Graduate salaries have a gender gap and are also positively associated with family income and school background. Thus, inequality in the labor market has roots both in the variation of the quality of higher education, and before university entry – in family and high school. The findings can substantiate the policy aimed at smoothing educational inequality and differences in wages.

Youth unemployment during economic shocks: Evidence from the metal-mining prices super cycle in Chile

We analyze the effect of an exogenous commodity shock on youth long-run unemployment, and the causal mechanisms that underlie this relationship. We use Chile as a study case and the Metal Mining Price Super Cycle between the years 2003 and 2011 as an exogenous shock. The shock in Chile has two primary phases: expansion and contraction. Expansion began in 2003 and coincides with the sustained increase in metal mining prices, reaching their maximum level in 2011. Contraction began in 2013 as prices began to fall. The Chilean labor market was significantly affected by both. We leverage the heterogeneous spatial exposure of Chilean municipalities to the shock and use a difference-in-difference approach and simultaneous equations models with lagged variables to analyze the causal mechanisms. We find evidence that this shock negatively impacted the wage premium for education. We also provide empirical evidence of a simultaneous decrease in school enrollment rates and an increase in the labor force participation of the 15-18-year age group in mining municipalities during the shock. Finally, in the long term, this negatively impacted the employability of these individuals, increasing their likelihood of unemployment once the shock ended.

The Changing Education Distribution and Income Inequality in Great Britain

Over the past years, education attainment has increased at an unprecedented rate in Great Britain. We analyze how the education expansion affected inequality in household net incomes since the early 2000s. We show that, all else being equal, education composition changes led to higher living standards mostly through higher wages. As education expansion led to larger income gains in the middle and top than at the bottom of the distribution, income inequality increased. Despite the increasing share of high‐educated workers, we find limited evidence of a “compression” effect on inequality, as the higher education wage premium remained broadly unchanged.

The Effect of the Field of Study on the Higher Education Wage Premium — Evidence from Israel

AbstractChoosing an academic field of study is an important economic decision; it impacts the skills acquired during the course of one's studies, the occupation and industry when entering the labor market, and consequently, one's potential salary. Using administrative records on the birth cohort of 1975–85 in Israel, we examine the impact of the choice of academic field of study on salary and find that this choice accounts for about 20 per cent of the explained variance in wages. In general, the effects we find are qualitatively similar to those found in a similar study conducted for the United States, although the variance found in Israeli data is slightly higher. Thus, compared with education studies graduates, we find a particularly high premium for computer science and engineering fields, and a negative premium for arts, psychology, architecture, and the humanities.

Education outcomes and the labor market

The quality of education appears to be negatively correlated with both the overeducation of workers at the tasks they perform and the unemployment rate across EU-15 countries, and positively correlated with the wage premium associated to tertiary education. We develop a model of the labor market with frictions to quantitatively investigate the impact of the education outcomes on the labor market. We show that both the ability of educated andnon educated workers have sizable effects on the incentives of firms regarding the type of vacancies they open and also regarding the incentives of educated workers as of where to search for a job. Therefore education outcomes are relevant to understand the overeducation phenomena observed in the labor market. According to our quantitative analysis had the quality of education observed in Spain been similar to the European average then the overeducation rate would have been between 5 and 10 percentage points lower and the unemployment rate of the two types of workers would be reduced by 40%, but the tertiary education wage premium would be slightly smaller than in the benchmark economy.

Higher Education in India from 1983 to 2014: Participation, Access and Labour Market Outcomes across Socio-religious Groups

This article uses National Sample Survey (NSS) data to analyse the trends in India’s higher education in terms of participation, access and institutional preferences during the last three decades between 1983 and 2014. It documents a remarkable participation growth in higher education across socio-religious groups since the early 1980s; the number of higher educated persons has doubled in each decade especially among the younger age cohort. The increase in participation of the socially disadvantaged groups (SDGs) in higher education, however, was not on a par with the participation levels of advantageous groups; rural females among the disadvantaged groups are particularly lagging. The share of enrolment in government institutions (GIs) has declined while in private institutions it has considerably increased from across social groups, albeit in varying degrees and from top quintile groups. The labour market outcomes show declining workforce participation rates among the higher educated, especially the female graduates who end up in domestic work. The greater wage premium for higher education has, however, not bridged the gap between social groups. Instead, the outcomes within the same education group vary, witnessed in the low real wage for the disadvantaged and declining wage ratio between the disadvantaged and the advantageous groups.

How redistributive policies reduce market inequality: education premiums in 22 OECD countries

Abstract What explains the large cross-country variation in the wage premium for higher education? Economic analyses of wage differentials by education point to technological change and globalization, but we know little about the impact of different types of public policies. We argue that public education spending and tax-transfer policies contain the spread of ‘education premiums’ through material incentives (decommodification) and attitudinal responses, i.e. changing attitudes towards education premiums and the motivation to request a maximum return on individual investment in education. The empirical analysis relies on a new dataset of education premiums constructed from Luxembourg Income Study surveys, covering 22 OECD countries between 1989 and 2014. We provide evidence that taxation levels and public education spending particularly affect education premium levels and changes within countries. For the literature on income inequality, these findings imply the need to pay attention more systematically to redistributive policies shaping the ‘market’ distribution of incomes.

Manila to Malaysia, Quezon to Qatar

I estimate the effect of international migration on the human capital of children in the migrants' origin country. Using administrative data containing all migrant departures from the Philippines, I exploit variation across provinces in destination-country demand for migrants. My estimates are at the local labor market level, allowing for spillovers to nonmigrant households. An average year-to-year percent increase in migration causes a 3.5 percent increase in secondary school enrollment. The effects are likely driven by increased income rather than an increased expected wage premium for education. [ABSTRACT FROM AUTHOR]

Returns To Education During And After The Economic Crisis: Evidence From Latvia 2006–2012

We employ EU-SILC micro data for Latvia to study how returns to education changed during the economic crisis of 2008–2009 and afterwards. We found that returns to education increased significantly during the crisis and decreased slightly during the subsequent economic recovery. The counter-cyclical effect was evident in nearly all population groups. After the crisis, education became more associated than before with a longer working week and a higher employment probability. Furthermore, we show that returns to education in Latvia are generally higher in the capital city and its suburbs than outside the capital city region, as well as for citizens of Latvia than for resident non-citizens and citizens of other countries, but lower for males and young people. Wage differential models reveal a relatively large wage premium for higher education and a rather small one for secondary education. Estimates obtained with instrumental variable (IV) models significantly exceed the OLS estimates.

Dysfunctions in the Federal Financing of Higher Education

Tuition, in real terms and across American universities, has roughly tripled over the past four decades. Through a review of the literature and the collection of basic data, we find support for the theory that the increases in federal financial support (loans and grants) for students have led to a significant share of these increases in tuition. We also find evidence against the assertion by some prominent researchers—used as support for devoting more federal resources to higher education—that in recent decades the wage premium for college education has increased, the supply of college-educated workers has been relatively weak, and wage inequality has increased as a result. Finally, we report data about the massive increase in the volume of federal student loans and about rising default rates on average and in particular among nontraditional students. The concomitant increase in tuition, increase in student loan defaults, and decline in average student quality, along with the unclear economic benefits to significant segments of former students and the current workforce, lead one to question whether the massive increase in federal support for higher education is achieving its goals.

Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?

Wage gaps between workers with a college or graduate degree and those with only a high school degree rose rapidly in the United States during the 1980s. Since then, the rate of growth in these wage gaps has progressively slowed, and though the gaps remain large, they were essentially unchanged between 2010 and 2015. I assess this flattening over time in higher education wage premiums with reference to two related explanations for changing U.S. employment patterns: (i) a shift away from middle-skilled occupations driven largely by technological change (polarization); and (ii) a general weakening in the demand for advanced cognitive skills (skill downgrading). Analyses of wage and employment data from the U.S. Current Population Survey suggest that both factors have contributed to the flattening of higher education wage premiums.

Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?

Wage gaps between workers with a college or graduate degree and those with only a high school degree rose rapidly in the United States during the 1980s. Since then, the rate of growth in these wage gaps has progressively slowed, and though the gaps remain large, they were essentially unchanged between 2010 and 2015. I assess this flattening over time in higher education wage premiums with reference to two related explanations for changing U.S. employment patterns: (i) a shift away from middle-skilled occupations driven largely by technological change (polarization); and (ii) a general weakening in the demand for advanced cognitive skills (skill downgrading). Analyses of wage and employment data from the U.S. Current Population Survey suggest that both factors have contributed to the flattening of higher education wage premiums.

Economic Growth and Wage Stagnation in Peru: 1998–2012

AbstractFrom 1998 to 2012, the Peruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables that are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, reflecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6% per year, of which 0.7 percentage points are accounted for by the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with different levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these findings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.

Analysis of Education Wage Premium in Several Provinces of China

By using the CHIP-2007 data, this paper builds a model based on the Mincer wage equation model, and analyses the education wage premium of three levels of education—“junior middle school and the following”, “high school or technical secondary school”, and “junior college or above” in several provinces of China by the OLS estimation method. The analysis results show that the wage income of workers in China increases with the improvement of education level. There does exist the education wage premium. There isn’t the phenomenon that the intellectual workers get less wage income than manual workers. Education wage premium of the population of tertiary and higher education level is much higher than that of the population of high school or secondary school education level.

Incidence of Child Labour and Child Schooling in India: Pattern and Determinants

The issue of child labour is a frontline concern in India, as early entry into labour market at formative stage of life does mean absconding from proper schooling leading to loss of future scope of better livelihood, since the existing literature shows that there is wage premium for education in Indian labour market. In this perspective, this study aims to carry out a supply-side analysis towards examining the incidence and pattern of child labour and child schooling to test out regional and gender disparities, if any, in terms of these incidences. Socio-economic determinants across gender and region also have been identified for an everlasting way out of the crisis. The data-base utilized for the analysis has been extracted from the National Sample Survey on “Employment and Unemployment Situation in India” for the 61st large sample round (2004-2005). The pattern of child employment in a range of industries confirms the malfunctioning of lawful steps to save child labourers from mischief of occupational vulnerability. It also reveals significant discrepancy in incidence of child labour both across region and gender, but for schooling choice no considerable regional gap is substantiated.

Human Capital, Exports, and Earnings

Abstract This study tests whether manufacturing exporters pay more to educated workers in an effort to ascertain whether the productivity of human capital is raised by exports. Using a panel of matched employer‐employee data from Morocco, we find no evidence that the education wage premium is higher in exporting sectors and firms. Although exporters pay more on average, much of the wage differential can be explained by the fact that exporters have a larger workforce and more capital. Educated workers who start working for an exporter do not experience a larger wage increase relative to their previous job. We find a mild positive association between exports, technology, and product quality, part of which is due to differences in firm size. We discuss why our results differ from those obtained using different countries and methodologies.

Education and Poverty in Vietnam: A Computable General Equilibrium Analysis

Education is often promoted as the solution to poverty in the developing world. Yet, fiscal discipline has led to reductions in public spending on education. We examine the poverty impacts of a cut in public subsidies to higher education, accompanied by corresponding tax cuts, in a general equilibrium framework applied to Vietnam. This policy is shown to have strong and complex impacts through various channels: a direct increase in the private costs of higher education, a reduction in education investments, a shift in the economy's skills mix in favor of unskilled workers, a rise in the wage premium for skilled workers, education and consumer price changes, etc. When all of these contrasting impacts are taken into account, we find that a higher education subsidy cut reduces welfare and increases poverty in Vietnam. While rural and agricultural households would benefit from this reform, urban and non-agricultural households would lose out.

SKILL BIAS AND EMPLOYMENT FRICTIONS IN THE U.S. LABOR MARKET 1970–1990*

This article studies simultaneous changes in four labor market variables: the unemployment rates for college and high‐school graduates, the education wage premium, and the level of college participation. It develops an equilibrium search and matching model of the labor market where education is endogenously determined. Then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the United States can be traced to changes in the environment. A skill‐biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables.

Economic returns to schooling in urban China, 1988 to 2001

This study provides estimates of the returns to schooling in urban China over an extended period of economic reforms. We find a dramatic increase in the returns to education, from only 4.0 percent per year of schooling in 1988 to 10.2 percent in 2001. Most of the rise in the returns to education occurred after 1992 and reflected an increase in the wage premium for higher education. The rise is observed within groups defined by sex, work experience, region, and ownership, and is robust to the inclusion of different control variables. The timing and pattern of changing schooling returns suggest that they were influenced strongly by institutional reforms in the labor market that increased the demand for skilled labor. Journal of Comparative Economics 33 (4) (2005) 730–752.