Math Matters: Student Ability, College Majors, and Wage Inequality

Michelle Rendall and Andrew Rendall

No 1196, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper assess increasing wage inequality by showing that the top deciles of college earners are enjoying significant relative wage growth, which is underpinned by the link between ex ante math ability, math-heavy college majors and highly quantitative occupations. This mechanism is further strengthened by the strong and accelerating shift away from math-heavy college majors and occupations. We develop a general equilibrium model with multiple education choices whose outcomes depends on ex ante abilities, coupled with preferences, that lead to occupational opportunities that mimic the facts presented. This research shows that a large portion of wage inequality is determined by initial math/quantitative abilities. Furthermore, these results imply that policy measures aimed at increasing college enrollment to decrease wage inequality do not address the underlying process and, in some cases, may exacerbate wage inequality.

Date: 2013
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Working Paper: Math matters: education choices and wage inequality (2014)
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