Question

I. Between 1970 and 1980 the fraction of college educated workers increased from about 22% to 30%. The large inflow of college educated workers into the labour market pushed the college wage premium downward. See figure 7.8 from the textbook. a) Use a labour supply/demand diagram to explain this fact. After 1980 the college premium starts increasing while the supply of college educated workers increased as well. Can you explain what is happening in the labour market? b) FIGURE 7.8 College versus High School Wages and Employment, 1960-2005 24 Fraction of hours worked by college-educated workens left scale) 20 Wage premium right scale) 1.6 0.2 1960 1965 970 1975 1980 1985 1990 1995 2000 2005 Year Source David H.Autor, Lawrence F. Katz, and Melissa S. Koarmay, Tronds in U.S. Wage Inequality: Re Assessing the Revisionists, Review of Economics and Statistics vol 90 (May 2008) pp. 300-323