Chapter 6 Educational Wage Premiums and the U.S. Income Distribution: A Survey

This chapter discusses the large literature and numerous issues regarding education-related differences in income in the U.S. Early analyses of skill-related differences compared the earnings of workers across occupations. The general consensus of these investigations was that skill premiums narrowed substantially between 1900 and 1950. The large increase in the supply of high-school graduates relative to the increased demand for skilled workers is the likely explanation. Following the 1940 Decennial Census, which collected information on educational attainment and on earned income and time worked, empirical analyses concentrated directly on education-related differences in earnings. The human capital revolution of the late 1950s/early 1960s greatly expanded the research on education and income and shifted the focus to wages. The human capital approach modeled income as endogenous and sought to understand the variation in earnings by providing a framework for estimating the returns to education and experience. Recent analyses of education and wages have built on this foundation and have been embedded in a large literature that seeks to document and understand the substantial increase in wage inequality over the last 40 years. The consensus is that increases in the demand for skill are the main culprit, though the reasons for such increases are still an open question. We use census data to document the overall increase in education-related income differences over the past 60 years for several income measures. We also document concomitant changes in enrollment and provide a preliminary analysis suggesting that enrollment has responded to the increase in educationwage premiums. We use NLSY data to document the variation in enrollment patterns for those who attend college and to show how these differences are related to pre-schooling characteristics and to post-schooling earnings. We conclude with a brief discussion of the main issues for future research raised throughout the chapter.