An Analysis of the Evolution of the Skill Premium

Beth Ingram () and George Neumann ()
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George Neumann: University of Iowa

Working Papers from University of Iowa, Department of Economics

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.

Keywords: Skilled wage premium; wage dispersion; factor analysis; neural nets; education (search for similar items in EconPapers)
JEL-codes: C1 J0 J1 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1999-08
New Economics Papers: this item is included in nep-edu and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:uia:iowaec:99-08

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