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.
Athreya, Kartik, and Janice Eberly.
"Risk, the College Premium, and Aggregate Human Capital Investment."
American Economic Journal: Macroeconomics,
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Educational Finance; Financial Aid
Higher Education; Research Institutions
Human Capital; Skills; Occupational Choice; Labor Productivity
Wage Level and Structure; Wage Differentials
Technological Change: Choices and Consequences; Diffusion Processes