Working Paper: NBER ID: w31373
Authors: David J. Deming
Abstract: The U.S. college wage premium doubles over the life cycle, from 27 percent at age 25 to 60 percent at age 55. Using a panel survey of workers followed through age 60, I show that growth in the college wage premium is primarily explained by occupational sorting. Shortly after graduating, workers with college degrees shift into professional, nonroutine occupations with much greater returns to tenure. Nearly 90 percent of life cycle wage growth occurs within rather than between jobs. To understand these patterns, I develop a model of human capital investment where workers differ in learning ability and jobs vary in complexity. Faster learners complete more education and sort into complex jobs with greater returns to investment. College acts as a gateway to professional occupations, which offer more opportunity for wage growth through on-the-job learning.
Keywords: wage growth; college wage premium; occupational sorting; human capital investment
JEL Codes: J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| education (I29) | wage growth (J31) |
| job complexity (L23) | wage growth (J31) |
| education (I29) | job complexity (L23) |
| occupational sorting (J29) | wage growth (J31) |
| job complexity (L23) | college wage premium (J31) |
| early career occupational sorting (J62) | life cycle growth in college wage premium (D29) |