An Analysis of the Evolution of the Skill Premium
AbstractSince 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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Bibliographic InfoPaper provided by University of Iowa, Department of Economics in its series Working Papers with number 99-08.
Length: 22 pages
Date of creation: Aug 1999
Date of revision:
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/
More information through EDIRC
Skilled wage premium; wage dispersion; factor analysis; neural nets; education;
Find related papers by JEL classification:
- J0 - Labor and Demographic Economics - - General
- J1 - Labor and Demographic Economics - - Demographic Economics
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-03-20 (All new papers)
- NEP-EDU-2000-03-20 (Education)
- NEP-LAB-2000-03-20 (Labour Economics)
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