Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Economics

Supervisor

Lance Lochner

2nd Supervisor

Chris Robinson

Joint Supervisor

Abstract

This thesis contains three studies on national and local college wage premia, skill premia, and implications of geographic mobility for local wages. The second chapter investigates the reasons for problems with the standard supply-demand model of skill premium. This chapter shows that the problems of canonical model can be explained by mismeasurement of skills and skill prices. The standard approach assumes changes in wages are driven by changes in skill prices alone, and not by skill levels. We re-estimate the canonical model allowing for changes in skill levels over time. The results show that the demand changes have a much smaller role, and that the elasticity of substitution between college and high school labour is higher compared to the standard approach. The model also yields a much better out-of-sample prediction for the college wage premium.

The third chapter examines whether implications of the canonical model continue to hold at the Census regional level using the more general approach in the second chapter. Relaxing the assumption of constant skill levels, this chapter shows that the movements in relative wages mask important trend differences in relative skill prices across regions. The results show that while the standard approach suggests very different relative demand patterns across regions, the alternative approach shows much closer patterns. In addition, elasticities of substitution between college and high school labour are more similar across regions compared to the standard approach. Therefore, differences in changes in relative skill prices across regions are mainly driven by differences in relative skill supply patterns.

The fourth chapter presents recent evidence on the comparison of responsiveness of college and high school graduate wages to local demand shocks in the U.S. This chapter shows that there are significant wage effects of local demand shocks in the 1980s, which decline over time for both groups. Moreover, wage effects are deeper for high school graduates during the 1980s and 1990s, but they converge during the 2000s. This is also accompanied by converging annual inter-state mobility rates between the two education groups compared to the 1980s and 1990s, which confirms the importance of labour reallocation across markets.


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