Skills, Degrees and Labor Market Inequality

Income inequality between workers with and without bachelor’s degrees has grown sharply during the past 50 years. Canonical explanations attribute this trend to skill-biased technological change, often labeling workers with bachelor’s degrees as “skilled” and those without as “unskilled.” We offer a complementary approach by using the skill requirements of a worker’s current job as a proxy for their skill set. This method enables skill-based comparisons across educational backgrounds and ties observed skills directly to labor market demand. It also broadens the definition of a skilled worker to include those who develop expertise through work experience. We refer to such workers as Skilled Through Alternative Routes (STARs), consistent with the idea that human capital is accumulated not only through formal education but also through on-the-job work experience. Building on this framework, we develop a model of job transitions in which the Absolute Skill Mobility Friction (ASMF) is defined as the elasticity of the flow rate between two occupations with respect to skill distance separating them. Empirically, we find that STARs and bachelor’s degree holders experience similar mobility frictions when moving between jobs with comparable skill requirements. However, STARs face greater friction than bachelor’s degree holders when moving to higher-wage jobs that demand more skills than their current occupation. This gap in upward mobility persists unmitigated in tight labor markets, suggesting that human capital differences alone do not account for labor market inequality by education.