Skill Premium, Schooling Decisions, Skill-Biased Technological and Demographic Change: A Macroeconomic Analysis

Hui He ()

No 226, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the driving forces behind the dynamics of the skill premium and college enrollment rate in the postwar US economy. I develop an overlapping generations general equilibrium model with endogenous discrete schooling choice. The production technology features capital-skill complementarity as in Krusell et al. (2000). Within this framework, I quantitatively examine the effects on the skill premium and enrollment rate of two exogenous forces, investment-specific technological change (ISTC) and the demographic change known as “the baby boom and baby bust”. I find that demographic change plays an important role in accounting for the dynamics of the skill premium before the late 1970s, while ISTC drives most of the changes in the skill premium since then. ISTC also explains about 30% of the increases in the enrollment rate for the period 1951-2000, while demographic change does not have a significant effect on the enrollment rate.

Date: 2007
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