University of Miami

The Rising College Wage Premium

Luca Betancourt
David Maldonado
Pierre Sauniere

ECO 300-N
Professor: Rong Hai

1.Pleaseexplainwhatcollegewagepremiumis.
Itiswelldocumentedthatcollegegraduatesearnsignificantlyhigherwageson

averagethanthosewithonlyhighschooldiploma.Thecollegewagepremium

hasbeenacentralfocusforresearchersbecauseitisbothlargeandgrowing.

Thecollegewagepremiumiscalculatedastheratioofthemedianhourlywage

forthoseholdingabachelorsdegreeandthemedianhourlywageforthose

whohaveonlycompletedhighschool.

2.PleaseexplainthechangesincollegewagepremiumintheU.S.sincethe
1960susingdemandandsupplytheory.

Overthepastfewdecades,thewagesofskilledhighincomeworkershave

grownsubstantially,whilethewagesofunskilledlowincomeworkershave

fallenslightly.From1978to2009,peopleinthetop20percentoftheincome

distributionexperiencedanincreaseintheiraveragereal(inflationadjusted)

pretaxhouseholdincomeof45percent,whilethoseinthebottom20percent

sawtheiraveragerealpretaxincomeincreasebyonly4percent.Whilethe

supplyofunskilledworkerspeoplewithlimitededucationshasgrown

substantially,thedemandforthemhasrisenonlyslightly.Ontheotherhand,

whilethesupplyofskilledworkerse.g.,engineers,scientists,managers,and

economistshasgrownslowly,thedemandhasrisendramatically,pushing

wagesup.
3.PleasediscusschangesintheU.S.economythatcouldpotentiallyaffectthe
demandforcollegeworkers.

ChangesintheUSeconomythatcouldpotentiallyaffectthedemandfor

collegeworkersare:theriseofautomation,machinelearning,andartificial

intelligence.Automationhasbeenresponsibleforthelossofover5million

jobsalready.Allofthesetechnologicalchangesmaydecreasetheoverall

demandforlabor,includingcollegeeducatedworkers.Whiledemandasa

wholeisexpectedtofall,thedemandforcollegeeducatedworkersisexpected

tofallmoreslowlythanthedemandforpersonswithonlysecondaryeducation.

Otherfactorsinthemoreshorttermthatmayinfluencechangesin

demandforcollegeworkersisthestrippingofregulationsunderPresident

Trump.Withreducedregulations,andneglectinganypotentialbubblesthat

mayburst,thedemandforcollegeeducatedworkersmayincreasedueto

increasecapitalflowintheshortterm.Thisisassumingthattherewouldbeno

bubbles,andthatderegulationincreasedthetepidlaborforceparticipationrate

andkeepsunemploymentatahealthylevel.

4.PleasediscusschangesintheU.S.economythatcouldpotentiallyaffectthe
supplyofcollegeworkers.

ChangesintheUSeconomythatcouldpotentiallyaffectthesupplyof

collegeeducatedworkersaretheincreasingfocusontradeschools,intandem
withtheincreasingcostofattendingcollege.Thethereis$1.2trillioninloans

currentlyamassedbyAmericanstudents.Asthecostofeducationskyrockets,

thedebtthatisincurredbymanystudentsisunsustainable.Withaboveaverage

growthprospectsforskilledtradesthatdonotrequireadegree,withanaverage

growthrateof20%,thesupplyofcollegeeducatedworkersmaydecrease.

5.PleaseselectaparticularpolicythatU.S.governmenthasimplementedin
thepastanddiscusshowdiditaffectthedemandand/orsupplyofcollege
workersandsubsequentlythecollegewagepremium.

TheH1Bvisaprogramhelpsprofessionalworkersfromdifferent

countriesfindemploymentintheU.S.Throughthisprogramcappedata

maximumof65,000visasperyear(AmericanImmigrationCouncil),American

employerscanfillintheirneedsforhighlyeducatedworkerswithatleasta

bachelorsdegreeoranequivalent.Thisprogramgrantsforeignprofessionalsa

periodofthreeyearsduringwhichtheycanworkintheU.S.,aswellasthe

chancetoextendtheirstaytoamaximumofsixyears(AIC).

Thedemandforcollegegraduatesisalwayshigherinthebigger

metropolitanareas,andtheimplementationoftheH1Bvisashashelpedfulfill

partofthatdemandbysupplyinghighlyskilledworkerstoseekingemployers.

Between2010and2011,106metropolitanareasacrosstheentirecountryhad
atleast250requestsforH1Bvisas(AIC).Hiringforeignershelpsthe

economybyfillingupthegapsofunemploymentfromthelackeducated

professionals,aswellashelpingcreatenewjobsandexpansionhence

increasingdemandforAmericanborncollegeworkers.TheH1Bvisaprogram

hashadapositiveimpactonthecollegewagepremium;ifwelookatthe

statisticsfrom1990to2010wecanseethatforeverypercentagepointinthe

increaseofH1Bworkerswageincrease,thereisa7to8pointincreaseinthe

wagesofnationalborncollegeeducatedworkers.Thisisastatisticdespitethe

factthatH1BworkerswagesareslightlyhigherthanthoseofAmericanborn

collegeworkers.