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An Analysis of the Evolution of the Skill Premium

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  • Ingram, Beth

    ()
    (University of Iowa)

  • Neumann, George

    ()
    (University of Iowa)

Abstract

Since 1975, an increase in the return to skill (measured by years of education), in the percentage of the labor force that is skilled, and in the variance of wage income within skill categories have characterized the U.S. labor market. While the first two facts point towards an increase in the demand for skilled labor, the third fact establishes that this increase in demand has not been uniform for all members of a particular skill category. Hence, the three stylized facts point toward unobserved skill heterogeneity within education classes. In this paper, we argue that education per se does not measure skill adequately, and we suggest an alternative measure based on the observed skill characteristics of the job. We analyze the return to various dimensions of skill, including formal education. After accounting for other elements of skill, we find that the return to education has been constant since 1970. Moreover, variations in direct measures of skill, such as mathematical ability or eye-hand coordination, account for a substantial fraction of the increased dispersion in income for those with less than a college degree, and some of the increase in wage dispersion among the college educated. Surprisingly, we show that the group who has fared worst in the labor market in the past several decades are those who are educated but unskilled.

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File URL: http://www.biz.uiowa.edu/faculty/bingram/Skill%20Premium.pdf
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Bibliographic Info

Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 99-08.

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Length: 22 pages
Date of creation: Aug 1999
Date of revision:
Handle: RePEc:uia:iowaec:99-08

Contact details of provider:
Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
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Keywords: Skilled wage premium; wage dispersion; factor analysis; neural nets; education;

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References

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  1. Casey B. Mulligan & Xavier Sala-i-Martin, 1995. "A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States," NBER Working Papers 5018, National Bureau of Economic Research, Inc.
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  3. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-66, May.
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  9. Bartel, Ann P, 1995. "Training, Wage Growth, and Job Performance: Evidence from a Company Database," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 401-25, July.
  10. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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  12. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
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Citations

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Cited by:
  1. Kristjan-Olari Leping, 2005. "Measuring the Specificity of Human Capital: a Skill-based Approach," Working Papers 134, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  2. Carsten Ochsen, 2006. "Zukunft der Arbeit und Arbeit der Zukunft in Deutschland," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 173-193, 05.
  3. Ochsen, Carsten, 2004. "Zukunft der Arbeit und Arbeit der Zukunft in Deutschland," Thuenen-Series of Applied Economic Theory 45, University of Rostock, Institute of Economics.
  4. Francesco Vona & Davide Consoli, 2011. "Innovation and skill dynamics: a life - cycle approach," Documents de Travail de l'OFCE 2011-26, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Kristjan-Olari Leping, 2009. "Measuring the Specificity of Human Capital:a Skill-based Approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 9(1), pages 39-54, July.
  6. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "The Effects of Technical Change on Labor Market Inequalities," Working Papers 89, Princeton University, Department of Economics, Center for Economic Policy Studies..

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