Thursday, June 25, 2009

The Vanishing Wage Premium

From the 1980s through the 1990s, the returns to education rose steadily each year. The education premium, the increased earnings that students earned for additional years of education increased steadily upwards.

Since 2000, the wage premium for education has held up. Students earning bachelor's degrees are earning 2.1 times the salaries of those who haven't finished high school or 1.6 times that of high school graduates.

What's new in this decade is that the premium is actually shrinking. Between 2000 and 2008, wages for high school dropouts have actually increased above the rate of inflation. Wages for students with bachelor's degrees actually declined. The differential is small, less than 3%, but clearly the premium is no longer rising.

Business Week argued in an article last week that the decline could be due to the lack of innovation in our economy over the past eight years. Fewer new ideas and fewer new products is resulting in lower returns to education. Another argument is that competition from Indian and China in information technology and other knowledge industries has brought down the wages of American workers at the top end. Others argue that we are seeing an oversupply of baaclaureate degrees. Or it could just be a data flaw.

No comments:

Post a Comment