Explaining Rising Income and Wage Inequality Among the College Educated

82 Pages Posted: 10 May 1999 Last revised: 14 Oct 2022

See all articles by Caroline M. Hoxby

Caroline M. Hoxby

Stanford University; National Bureau of Economic Research (NBER); Hoover Institution; Stanford University

Bridget Long

Harvard Graduate School of Education; National Bureau of Economic Research (NBER)

Date Written: January 1999

Abstract

The incomes and wages of college-educated Americans have become significantly more dispersed since 1970. This paper attempts to decompose this growing dispersion into three possible sources of growth. The first source, or extensive margin,' is the increasing demographic diversity of people who attend college. The second is an increasing return to aptitude. The third, or intensive margin,' combines the increasing self-segregation (on the basis of aptitude) of students among colleges and the increasing correlation between the average aptitude of a college's student body and its expenditure on education inputs. These tendencies are the result of changes in the market structure of college education, as documented elsewhere. We find that about 70% of the growth in inequality among recipients of baccalaureate degrees can be explained with observable demographics, measures of aptitude, and college attributes. About 50% of the growth in inequality among people who have 2 years of college education can be similarly explained. Of the growth that can be explained, about 1/4th is associated with the extensive margin, 1/3rd with an increased return to measured aptitude, and 5/12ths with the intensive margin. If the intensive margin is not taken into account, the role of increasing returns to aptitude is greatly overstated.

Suggested Citation

Hoxby, Caroline M. and Long, Bridget, Explaining Rising Income and Wage Inequality Among the College Educated (January 1999). NBER Working Paper No. w6873, Available at SSRN: https://ssrn.com/abstract=145570

Caroline M. Hoxby (Contact Author)

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Bridget Long

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