The Race Between Education, Technology, and Institutions
I generalize the canonical model--in which relative supply and demand for worker skills shape the skill premium--incorporating monopsony power, minimum wages, and unemployment. I estimate the extended canonical model using national data and, separately, state-level data. I show that incorporating the minimum wage improves the out-of-sample fit of the traditional canonical model. I document that minimum wages--together with supply and demand--play a central role in shaping the evolution of the U.S. college premium and the differential evolution of state-level college premia. Lending credibility to these conclusions, the state and national estimates are not only qualitatively, but also quantitatively consistent.
I thank David Autor, Ariel Burstein, Arnaud Costinot, Daniel Haanwinckel, Lawrence Katz, Christian Moser, and Andres Santos for helpful conversations. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.