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The Changing Roles of Education and Ability in Wage Determination

  • Gonzalo Castex
  • Evgenia Dechter
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    This study examines changes in returns to formal education and cognitive skills over the last 20 years using the 1979 and 1997 waves of the National Longitudinal Survey of Youth. We show that cognitive skills had a 30%-60% larger effect on wages in the 1980s than in the 2000s. Returns to education were higher in the 2000s. These developments are not explained by changing distributions of workers’ observable characteristics or by changing labor market structure. We show that the decline in returns to ability can be attributed to differences in the growth rate of technology between the 1980s and 2000s.

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    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc704.pdf
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    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 704.

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    Date of creation: Aug 2013
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    Handle: RePEc:chb:bcchwp:704
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    1. James Heckman & Edward Vytlacil, 2000. "Identifying the Role of Cognitive Ability in Explaining the Level of and Change in the Return to Schooling," NBER Working Papers 7820, National Bureau of Economic Research, Inc.
    2. McKinley L. Blackburn & David Neumark, 1991. "Omitted-Ability Bias and the Increase in the Return to Schooling," NBER Working Papers 3693, National Bureau of Economic Research, Inc.
    3. Ana M. Aizcorbe & Stephen D. Oliner & Daniel E. Sichel, 2006. "Shifting trends in semiconductor prices and the pace of technological progress," Finance and Economics Discussion Series 2006-44, Board of Governors of the Federal Reserve System (U.S.).
    4. Elizabeth U. Cascio & Ethan G. Lewis, 2006. "Schooling and the Armed Forces Qualifying Test: Evidence from School-Entry Laws," Journal of Human Resources, University of Wisconsin Press, vol. 41(2).
    5. Josh Kinsler & Ronni Pavan, 2011. "Family Income and Higher Education Choices: The Importance of Accounting for College Quality," Journal of Human Capital, University of Chicago Press, vol. 5(4), pages 453 - 477.
    6. Pillai, Unni, 2011. "A model of technological progress in the microprocessor industry," MPRA Paper 31881, University Library of Munich, Germany.
    7. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Working Papers 2011-037, Human Capital and Economic Opportunity Working Group.
    8. Ardiana N. Gashi & Geoff Pugh & Nick Adnett, 2008. "Technological change and employer-provided training: Evidence from German establishments," Economics of Education Working Paper Series 0026, University of Zurich, Institute for Strategy and Business Economics (ISU).
    9. Henry S. Farber & Robert Gibbons, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1007-1047.
    10. Bartel, Ann P & Sicherman, Nachum, 1998. "Technological Change and the Skill Acquisition of Young Workers," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 718-55, October.
    11. Chay, Kenneth Y. & Lee, David S., 2000. "Changes in relative wages in the 1980s Returns to observed and unobserved skills and black-white wage differentials," Journal of Econometrics, Elsevier, vol. 99(1), pages 1-38, November.
    12. 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.
    13. Michael F. Lovenheim & C. Lockwood Reynolds, 2011. "Changes in Postsecondary Choices by Ability and Income: Evidence from the National Longitudinal Surveys of Youth," Journal of Human Capital, University of Chicago Press, vol. 5(1), pages 70 - 109.
    14. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    15. Joseph G. Altonji & Prashant Bharadwaj & Fabian Lange, 2012. "Changes in the Characteristics of American Youth: Implications for Adult Outcomes," Journal of Labor Economics, University of Chicago Press, vol. 30(4), pages 783 - 828.
    16. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche 9406, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    17. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    18. Christopher R. Taber, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 665-691.
    19. Yona Rubinstein & Daniel Tsiddon, 2004. "Coping with Technological Change: The Role of Ability in Making Inequality so Persistent," Journal of Economic Growth, Springer, vol. 9(3), pages 305-346, 09.
    20. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2006. "Technology-policy interaction in frictional labor markets," Working Paper 06-10, Federal Reserve Bank of Richmond.
    21. Derek A. Neal & William R. Johnson, 1995. "The Role of Pre-Market Factors in Black-White Wage Differences," NBER Working Papers 5124, National Bureau of Economic Research, Inc.
    22. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
    23. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
    24. Jeff Grogger & Eric Eide, 1995. "Changes in College Skills and the Rise in the College Wage Premium," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 280-310.
    25. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 313-350.
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