College Education, Earning Inequality, and Market Power

Abstract

More people in the U.S. graduate from college than ever before. However, earning inequality has been rising (rather than declining) during the past 50 years. Whereas previous literature explained this puzzle by skill-biased technology changes, I argue that there must be additional factors, such as increased market power in some sectors, that contribute to the rise in earning inequality. These factors must be sufficiently strong to offset the increased supply of workers with college and higher degrees. Increased market power can also explain why income inequality in the U.S. rises faster than in other OECD countries.