Why Did College Wage Premium Growth Slow Down? An Analysis with Endogenous Supply of College Workers

43 Pages Posted: 13 Mar 2020

See all articles by Yiheng Huang

Yiheng Huang

Clemson University, College of Business and Behavioral Science, John E. Walker Department of Economics; Shenzhen University - China Center for Special Economic Zone Research (CCSEZR)

Kevin K. Tsui

Clemson University - John E. Walker Department of Economics

Date Written: February 15, 2020

Abstract

We look into the reasons for the significant deceleration of college wage premium growth since 2000 with a planner decision model in which the supply of college workers is endogenously determined. By counterfactual simulations, we find that: (1) the slower skill-biased technological change and faster skill-neutral productivity progress in both routine and manual task occupations account for two-third of the deceleration; (2) the slower skill-biased technological change in cognitive task occupations only explains less than one-tenth of the deceleration prior 2014; (3) the change in cost shifter of college worker supply attributes about a quarter of the deceleration. Furthermore, we show that the decline in college workers’ mean quality is a mechanism with a moderate impact on the deceleration. Our findings suggest that even the overall technological change was becoming more biased in favor of skills, the average college wage premium growth could still slow down. Also, if the demand reversal and automation in non-cognitive task occupations are the necessary directions of technological change, then the deceleration is somewhat an inevitable outcome of technological progress.

Keywords: college wage premium, deceleration, endogeneous supply, technological change

JEL Classification: E24, J24, J31

Suggested Citation

Huang, Yiheng and Tsui, Kevin K., Why Did College Wage Premium Growth Slow Down? An Analysis with Endogenous Supply of College Workers (February 15, 2020). Available at SSRN: https://ssrn.com/abstract=3538610 or http://dx.doi.org/10.2139/ssrn.3538610

Yiheng Huang (Contact Author)

Clemson University, College of Business and Behavioral Science, John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

HOME PAGE: http://https://suncityh.wixsite.com/yiheng

Shenzhen University - China Center for Special Economic Zone Research (CCSEZR) ( email )

Nanhai Ave. 3688
Huiwen Building 1705
Shenzhen, Guangdong 518060
China

Kevin K. Tsui

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

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