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The supply of college-educated workers: the roles of college premia, college costs, and risk

  • Kartik B. Athreya
  • Janice Eberly

Despite a large measured college premium, roughly one-third of all high-school graduates currently do not enroll in any form of college. Moreover, while recent increases in the premium have been accompanied by increases in enrollment, college attainment has remained flat. Our paper studies the roles played by college premia, college costs, and risk, ceteris paribus, for college enrollment and attainment in a simple quantitative model of risky college investment. Our results suggest that most U.S. high-school completers are currently inframarginal with respect to the college premium. We find, however, that the levels of current premia, costs, and uninsurable risks all matter for this. Our results imply that, barring improvements in collegiate preparedness and attrition rates, high and persistent college premia, with high attendant levels of earnings inequality, may accompany the shift in demand towards skilled labor, which recent work (e.g., Autor, Levy, and Murnane (2003)) suggests is under way.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 13-02.

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Date of creation: 2013
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Handle: RePEc:fip:fedrwp:13-02
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  1. Lutz Hendricks & Oksana Leukhina, 2014. "The Return to College: Selection Bias and Dropout Risk," CESifo Working Paper Series 4733, CESifo Group Munich.
  2. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," NBER Working Papers 18782, National Bureau of Economic Research, Inc.
  3. Todd Schoellman & Lutz Hendricks, 2009. "Student Abilities During the Expansion of U.S. Education, 1950-2000," 2009 Meeting Papers 162, Society for Economic Dynamics.
  4. 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.
  5. Tyler Ransom & Esteban Aucejo & Arnaud Maurel & Peter Arcidiacono, 2014. "College Attrition and the Dynamics of Information Revelation," 2014 Meeting Papers 529, Society for Economic Dynamics.
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