Math Matters: Education Choices and Wage Inequality
University of Zurich, Department of Eoconomics, Working Paper No. 160
44 Pages Posted: 6 Jun 2014
Date Written: May 31, 2014
SBTC is a powerful mechanism in explaining the increasing gap between educated and uneducated wages. However, SBTC cannot mimic the US within-group wage inequality. This paper provides an explanation for the observed intra-college group inequality by showing that the top decile earners' significant wage growth is underpinned by the link between ex ante ability, math-heavy college majors and highly quantitative occupations. We develop a general equilibrium model with multiple education outcomes, where wages are driven by individuals' ex ante abilities and acquired math skills. A large portion of within-group and general wage inequality is explained by math-biased technical change (MBTC).
Keywords: Wage inequality, SBTC, college majors, occupations, mathematics abilities
JEL Classification: E20, E24, E25, I20, I24, J24, J31
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