Risk, the College Premium, and Aggregate Human Capital Investment, Federal Reserve Bank of Richmond
College attainment in the US has slowed over the last several decades, despite the persistent and rising college wage premium. We show that this apparent puzzle can be understood by taking into account the risk of attending college, and in particular the possibility of failing to graduate. Students with a reasonable probability of college completion already enroll, and for those who do not, the low chance of completion blunts the impact of the rising college premium, which they only receive if they graduate. In the absence of improved college-readiness, our results suggest that continuing long-standing trends in skill biased technological change can be expected primarily to increase earnings inequality, rather than college attainment.
Janice C. Eberly, Kartik Athreya
Eberly, C. Janice, and Kartik Athreya. 2019. Risk, the College Premium, and Aggregate Human Capital Investment. Federal Reserve Bank of Richmond.