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The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?

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Author Info
Taber, Christopher R
Abstract

The changes in the distribution of earnings during the 1980s have been studied extensively. The two most striking characteristics of the decade are (a) a large increase in the college/high school wage gap, and (b) a substantial rise in the variance of wage residuals. While this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill, most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium. In its simplest form, if higher ability individuals are more likely to attend college, then the increase in the college wage premium may be due to a increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college. This paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation. The results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium. Copyright 2001 by The Review of Economic Studies Limited

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 68 (2001)
Issue (Month): 3 (July)
Pages: 665-91
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Handle: RePEc:bla:restud:v:68:y:2001:i:3:p:665-91

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  3. Olivier Deschenes, 2002. "Estimating the Effects of Family Background on the Return to Schooling," University of California at Santa Barbara, Economics Working Paper Series 10-02, Department of Economics, UC Santa Barbara. [Downloadable!]
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  4. Norman Ireland & Robin A. Naylor & Jeremy Smith & Shqiponja Telhaj, 2009. "Educational Returns, Ability Composition and Cohort Effects: Theory and Evidence for Cohorts of Early-Career UK Graduates," CEP Discussion Papers dp0939, Centre for Economic Performance, LSE. [Downloadable!]
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  6. Bernarda Zamora & Eduard Gracia, 2007. "Nature, Nurture And Market Conditions: Ability And Education In The Policy Evaluation Approach," Working Papers. Serie AD 2007-29, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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  8. Christian Belzil, 2006. "Testing the Specification of the Mincer Wage Equation," Working Papers 0608, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
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  9. Meckl, Juergen & Zink, Stefan, 2002. "Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality," IZA Discussion Papers 668, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Flavio Cunha & James J. Heckman & Lance Lochner & Dimitriy V. Masterov, 2005. "Interpreting the Evidence on Life Cycle Skill Formation," NBER Working Papers 11331, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Ian Walker & Yu Zhu, 2007. "The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK by and," Working Papers 200720, Geary Institute, University College Dublin. [Downloadable!]
  12. Eric A. Hanushek & Javier A. Luque, 2002. "Efficiency and Equity in Schools around the World," NBER Working Papers 8949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Pedro Carneiro & Sokbae 'Simon' Lee, 2005. "Ability, sorting and wage inequality," CeMMAP working papers CWP16/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  14. Ian Walker & Yu Zhu, 2005. "The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK," IZA Discussion Papers 1627, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Jürgen Meckl, 2004. "Are US wages really determined by European Labor–Market Institutions?," Working Papers of the Research Group Heterogenous Labor 04-15, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
  16. Lisa Barrow & Cecilia Elena Rouse, 2005. "Do returns to schooling differ by race and ethnicity?," Working Paper Series WP-05-02, Federal Reserve Bank of Chicago. [Downloadable!]
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  17. Gebel, Michael & Pfeiffer, Friedhelm, 2007. "Educational expansion and its heterogeneous returns for wage workers," ZEW Discussion Papers 07-010, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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