No Can Do?: A Test of the Textbook Model of Labor Markets

Abstract

This paper first provides a twofold test of the Card and Lemieux [2001] hypothesis that variation in college attainment growth rates can have a substantial impact on cohort specific returns to college. Most importantly, this study exploits Britain's expansion of its higher education system between 1988 and 1994 to show that the recent increase in college attainment growth rates has decreased college premiums for Britain's youngest workers. This is in line with the predictions from an adverse supply shock in a simple aggregate model of relative demand for and supply of college labor. Moreover, this paper conjectures that a simple demand-supply model can go a substantial distance towards explaining the variation in the UK economy-wide average return to college and overall wage inequality.