Does a college education command a premium in the workplace?

As education levels in the American population have trended up over the past few decades, all job categories have been filled with people with higher education levels.   It seems likely that technology is changing the job market.  On other hand, it may be that the increased qualifications hired by some employers might not reflect a change in the job market as much as a change in the available population.  The question of how technology and other factors are affecting the mix of skill requirements in the work place is a deep one and one that serious economists have treated extensively. 

 The strongest argument for a real increase in skills relies on the observation that college educated workers seem to command an increasing premium in the marketplace.  This argument is emphasized in an often-cited Educational Testing Service publication titled Standards for What: The Economic Roots of K-16 Reform.  However, at note 10, the ETS publication notes: 

“A debate exists over the extent to which skills and skill requirements have increased in the economy. Different measures of skills-direct measurement, wage inequality, and skills gaps-often result in different outcomes (see Cappelli, 1993, 1996 for a review of this literature). However, the balance of the literature that examines wage inequality and supply and demand shifts concludes there has been an increase in skill  requirements in the economy (Autor, Katz, and Krueger, 1997; Goldin and Margo, 1992; Gottschalk, 1997;  Johnson, 1997; Juhn 1999; Katz and Autor, 1999; Katz and Murphy, 1992; Levy and Murnane, 1992; Murphy and Welch, 1993; Topel, 1997). The literature that emphasizes skill measurement concedes that there has been an increase in skill requirements, although some argue the changes are not exceedingly large and have slowed  dramatically since 1960 (Barton, 2000; Judy and D’Amico, 1997; Mangum, 1990; Mishel and Teixeira, 1991). The  evidence on upskilling within specific occupations is mixed with some evidence to support the thesis and additional evidence that upskilling in some occupations is offset by deskilling in others (Cappelli, 1993; Mishel and Teixeira, 1993).”   

 Capelli, Technology and Skill Requirements, Implications for Establishment Wage Structures, New England Economic Review, May/June 1996, which includes a full literature review, notes that technology may have downskilling consequences as well as upskilling consequences and concludes that:

 Overall, [the study] results seem to support the general argument that changes in the workplace are increasing skill requirements, at least for production workers.  . . . The potential consequences of rising skill requirements are . . . complex, and it may not be obvious how best to accommodate them.

Capelli notes that studies of the composition of the work force — which form the basis for the ETS reports favoring increasing the rate of college graduation — are problematic, stating circa note 7:  The problem with all such studies is the difficulty in controlling for the content of jobs.

Without cutting deep into this literature it seems fair to conclude that there is a real increase in skills in the economy.  But the literature is far too complex to draw clear policy consequences from it.   The increase of the college wage premium does not tell what the extent of supply/demand imbalance is — a small imbalance can create a significant premium.    Additionally, the increase in the premium might better be explained by a decline of the market for lower-skilled employees caused by the expansion of low-skill competition from other countries.  Finally, the premium may be explained by demand for the most selected graduates from the most competitive institution and reflect a premium for high skill as opposed to a general premium on education.

However imperfect the workforce composition studies may be these are probably the only guides we have as to the future demands of the work place and they do not support an argument for universal post-secondary education.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.