Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337161 
Year of Publication: 
2025
Series/Report no.: 
Document de travail No. 2025-5
Publisher: 
Université du Québec à Montréal, École des sciences de la gestion (ESG UQAM), Département des sciences économiques, Montréal
Abstract: 
We develop a general-equilibrium OLG model of human capital to study the dynamics of the U.S. college premium and lifetime wage profiles between 1940 and 2020. The model features endogenous education and on-the-job training, along with exogenous aggregate (skill-neutral and skill-biased) shocks and cohort-specific trends in initial human capital endowments and learning capabilities. The estimated model replicates the W-shaped evolution of the college premium and the flattening then steepening of lifetime wage profiles. We show that changes in labor efficiency, rather than changes in relative skill prices, are the main driver of these dynamics. We quantify the contribution of estimated exogenous drivers and find a key role for the deterioration of human capital endowments and learning abilities among more recent cohorts. Crucially, endogenous adjustments in educational attainment and skill prices serve as powerful equalizing forces. Without these market mechanisms, the gap between the lifetime wage profiles of skilled and unskilled workers would widen and the college premium double.
Subjects: 
College premium
Life-cycle wage profile
On-the-job training
Human capital
Technological progress
JEL: 
E24
E25
J24
J31
Document Type: 
Working Paper

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