The Rise in College Premium and Positive Assortative Matching in Colleges: Some Implications for Attainment (joint with Satyajit Chatterjee)

Abstract

There is a large increase in U.S. college enrolment rates in the past four decades. However, the increase in the fraction of people going to college is not matched up by the fraction that graduates. The constancy of college attainment rates is puzzling given the substantial increase

in the college premium in earnings during this same period. We develop a positive assortative theory of student-college matching that explains the observed trends in college enrolment, completion, attainment and the college premium in the U.S. An exogenous increase in the return

to a college degree induces an increase in enrolment rates. However, this behavior implies a shift in the distribution of students toward lower-ranked colleges, which in turn, induces lower completion rates. We calibrate the model to the U.S. economy and determine

how much the adverse shift in the distribution can be explained by our theory of assortative matching between students and colleges. Policy implications are discussed.