Risk, the College Premium, and Aggregate Human Capital Investment
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Kartik Athreya
-
Janice Eberly
- American Economic Journal: Macroeconomics (Forthcoming)
Abstract
Despite increases in the college earnings premium to persistently
high levels, investment in college education remains low. We can
understand this apparent puzzle by considering the risk of attending college, and in particular the possibility of failing to graduate.
Students with a reasonable probability of completing college already
enroll, and for those who do not enroll, the low chance of completion blunts the impact of the rising college premium. In the absence
of improved college readiness, our quantitative results suggest that
continuing long-standing trends in skill-biased technological change
can be expected primarily to increase earnings inequality, rather
than college attainment.
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