Reassessing the trends in the relative supply of college-equivalent workers in the U.S.: a selection-correction approach

Among better-educated employed men, the fraction of full-time full-year (FTFY) workers is quite high and stable—around 90 percent—over time in the U.S. Among those with lower education levels, however, this fraction is much lower and considerably more volatile, moving within the range of 62–82 percent for high school dropouts and 75–88 percent for high school graduates. These observations suggest that the composition of unobserved skills may be subject to sharp movements within low-educated employed workers, while the scale of these movements is potentially much smaller within high-educated ones. The standard college-premium framework accounts for the observed shifts between education categories, but it cannot account for unobserved compositional changes within education categories. Our paper uses Heckman’s two-step estimator on repeated Current Population Survey cross sections to calculate a relative supply series that corrects for unobserved compositional shifts due to selection into and out of the FTFY status. We find that the well-documented deceleration in the growth rate of relative supply of college-equivalent workers after mid-1980s becomes even more pronounced once we correct for selectivity. This casts further doubt on the relevance of the plain skill-biased technical change (SBTC) hypothesis. We conclude that what happens to the within-group unobserved skill composition for low-educated groups is critical for fully understanding the trends in the relative supply of college workers in the United States. We provide several interpretations to our selection-corrected estimates. Copyright Springer Science+Business Media New York 2015