Trends in Quality-Adjusted Skill Premia in the United States, 1960-2000

This paper presents new evidence that increases in college enrollment lead to a decline in the quality of college graduates between 1960 and 2000, resulting in a decrease of 9 percentage points in the college premium. A standard demand and supply framework can qualitatively account for the trend in the college and age premia over this period, but the quantitative adjustments that need to be made are substantial. To illustrate the importance of these adjustments, we reanalyze the problem studied in Card and Lemieux (2001), who observe that the rise in the college premium in the 1980s occurred mainly for young workers, and attribute this to the differential behavior of the supply of skill between the young and the old. Our results show that changes in quality are as important as changes in prices to explain the phenomenon they document. ∗Corresponding author: Pedro Carneiro, Department of Economics, University College London, Gower Street, London, WC1E 6BT, United Kingdom. Email: [email protected] and [email protected].