The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005

U.S. educational and occupational wage differentials were exceptionally high at the dawn of the twentieth century and then decreased in several stages over the next eight decades. But starting in the early 1980s the labor market premium to skill rose sharply and by 2005 the college wage premium was back at its 1915 level. The twentieth century contains two inequality tales: one declining and one rising. We use a supply-demand-institutions framework to understand the factors that produced these changes from 1890 to 2005. We find that strong secular growth in the relative demand for more educated workers combined with fluctuations in the growth of relative skill supplies go far to explain the long-run evolution of U.S. educational wage differentials. An increase in the rate of growth of the relative supply of skills associated with the high school movement starting around 1910 played a key role in narrowing educational wage differentials from 1915 to 1980. The slowdown in the growth of the relative supply of college workers starting around 1980 was a major reason for the surge in the college wage premium from 1980 to 2005. Institutional factors were important at various junctures, especially during the 1940s and the late 1970s.