Rising Wage Inequality & Human Capital Investment with Lancelot Henry de Frahan
Working Paper, Updated: September 2018
Abstract:
The real effects of rising wage inequality are a first-order concern due to the potentially dampening effects on growth and opportunity. Whether increasing local wage inequality incentivizes or chokes off human capital investment is an open empirical question. Using a local labor market design and an innovative instrument to predict changes in local wage distributions, we establish a startling fact: Over the 2000s, fewer people enrolled in community colleges in the very labor markets where the returns to skill were increasing. Further, we find that labor markets with predicted increases in wage inequality also experienced increased income segregation. Individuals on the margin of investment experienced increasingly poor environments in which to acquire skills. (JEL codes: J24, J3, J62, I24, R1, R23)
Presentations: Chicago Booth, Micro Lunch (2015), Chicago Harris, Center for Human Potential and Public Policy (2015), Chicago Fed (2016), University of Kentucky, Martin School (2016), University of California, Riverside, Applied Economics Seminar (2016), WEAI (Henry de Frahan, 2017), IAAE (2017), APPAM, International (2017), APPAM (2017), IAES (2017), University of California, Santa Barbara, Labor Economics Workshop (2018)