Live revision! Join us for our free exam revision livestreams Watch now

Topic updates

How the expansion of US higher education has led to a more divided society

Geoff Riley

27th August 2016

During the 1980s, US wage inequality increased sharply while college education expanded strikingly. Are these two historical episodes unrelated? A new study by Theodore Koutmeridis, presented at the annual congress of the European Economic Association in Geneva in August 2016, shows that this is not a coincidence, as although desirable, the expansion of higher education has actually increased wage inequality.

His analysis establishes that when higher education expands, talented individuals acquire skills and abandon the pool of uneducated workers. This decreases unskilled-inexperienced wages and boosts inequality, highlighting that talent misallocation compresses wage dispersion.

This unified theory is consistent with a combination of regularities in the data that cannot be explained easily by existing models, such as:

  1. The increase in the wage premium for having been to college despite the growing supply of skills;
  2. The understudied increase in the wage premium for experience;
  3. The sharp growth of the college premium for inexperienced workers and its moderate expansion for the experienced ones;
  4. The puzzling coexistence of an increasing experience premium within the group of less educated workers and its flat pattern among the more educated ones.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.