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An Analysis of the Evolution of the Skill Premium

Author

Listed:
  • Ingram, Beth

    (University of Iowa)

  • Neumann, George

    (University of Iowa)

Abstract

Since 1975, an increase in the return to skill (measured by years of education), in the percentage of the labor force that is skilled, and in the variance of wage income within skill categories have characterized the U.S. labor market. While the first two facts point towards an increase in the demand for skilled labor, the third fact establishes that this increase in demand has not been uniform for all members of a particular skill category. Hence, the three stylized facts point toward unobserved skill heterogeneity within education classes. In this paper, we argue that education per se does not measure skill adequately, and we suggest an alternative measure based on the observed skill characteristics of the job. We analyze the return to various dimensions of skill, including formal education. After accounting for other elements of skill, we find that the return to education has been constant since 1970. Moreover, variations in direct measures of skill, such as mathematical ability or eye-hand coordination, account for a substantial fraction of the increased dispersion in income for those with less than a college degree, and some of the increase in wage dispersion among the college educated. Surprisingly, we show that the group who has fared worst in the labor market in the past several decades are those who are educated but unskilled.

Suggested Citation

  • Ingram, Beth & Neumann, George, 1999. "An Analysis of the Evolution of the Skill Premium," Working Papers 99-08, University of Iowa, Department of Economics.
    • Handle: RePEc:uia:iowaec:99-08
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    File URL: http://www.biz.uiowa.edu/faculty/bingram/Skill%20Premium.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370, Elsevier.
    2. Kristjan-Olari Leping, 2009. "Measuring the Specificity of Human Capital:a Skill-based Approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 9(1), pages 39-54, July.
    3. Francesco Vona & Davide Consoli, 2015. "Innovation and skill dynamics: a life-cycle approach," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 24(6), pages 1393-1415.
    4. Carsten Ochsen, 2006. "Zukunft der Arbeit und Arbeit der Zukunft in Deutschland," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 173-193, May.
    5. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370, Elsevier.
    6. repec:pri:cepsud:113krusell is not listed on IDEAS
    7. Kristjan-Olari Leping, 2005. "Measuring the Specificity of Human Capital: a Skill-based Approach," Working Papers 134, Tallinn School of Economics and Business Administration, Tallinn University of Technology.

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    More about this item

    Keywords

    Skilled wage premium; wage dispersion; factor analysis; neural nets; education;
    All these keywords.

    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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