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Explaining Stagnation in the College Wage Premium

Author

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  • Bengali, Leila

    (Yale University)

  • Valletta, Robert G.

    (Federal Reserve Bank of San Francisco)

  • Zhao, Cindy

    (Princeton University)

Abstract

After growing substantially during the 1980s through the early 2000s, the college wage premium more recently has been largely unchanged, or stagnant. We extend the canonical production-function model of skill premiums to assess supply and demand contributions to the slowdown in the college wage premium, using annual CPS ASEC data from the early 1960s through 2023. To account for the rising importance of women in the college educated workforce, we estimate a hybrid model that incorporates components that are disaggregated by age and gender. We also allow for non-linearities and changes over time in the parameters of the aggregate production function. Our results suggest that the recent stagnation of the college wage premium primarily reflects demand factors, specifically a slowdown in the pace of skill-biased technological change.

Suggested Citation

  • Bengali, Leila & Valletta, Robert G. & Zhao, Cindy, 2025. "Explaining Stagnation in the College Wage Premium," IZA Discussion Papers 17717, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17717
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    References listed on IDEAS

    as
    1. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 705-746.
    2. Jack Mountjoy, 2024. "Marginal Returns to Public Universities," NBER Working Papers 32296, National Bureau of Economic Research, Inc.
    3. Leila Bengali & Marcus Sander & Robert G. Valletta & Cindy Zhao, 2023. "Falling College Wage Premiums by Race and Ethnicity," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(22), pages 1-6, August.
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    5. Audra Bowlus & Lance Lochner & Chris Robinson & Eda Suleymanoglu, 2023. "Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited," Journal of Human Resources, University of Wisconsin Press, vol. 58(6), pages 1783-1819.
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    More about this item

    Keywords

    college wage premium; educational attainment; labor supply; technological change; worker substitutability;
    All these keywords.

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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