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Trends in quality-adjusted skill premia in the United States, 1960-2000

Authors: Pedro Carneiro and Sokbae Lee
Date: 23 January 2009
Type: cemmap Working Paper, CWP02/09
DOI: 10.1920/wp.cem.2009.0209

Abstract

This paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000, resulting in a decrease of 8 percentage points in the college premium. The standard demand and supply framework (Katz and Murphy, 1992, Card and Lemieux, 2001) can qualitatively account for the trend in the college and age premia over this period, but the quantitative adjustments that need to be made to account for changes in quality are substantial. Furthermore, the standard interpretation of the supply effect can be misleading if the quality of college workers is not controlled for. To illustrate the importance of these adjustments, we reanalyze the problem studied in Card and Lemieux (2001), who observe that the rise in the college premium in the 1980s occurred mainly for young workers, and attribute this to the differential behavior of the supply of skill between the young and the old. Our results show that changes in quality are as important as changes in prices to explain the phenomenon they document.

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Now published:
Pedro Carneiro and Sokbae Lee October 2011, Trends in quality-adjusted skill premia in the United States, 1960-2000, Journal Article, American Economic Association

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