DISENTANGLING THE COLLEGE WAGE PREMIUM: ESTIMATING A MODEL WITH ENDOGENOUS EDUCATION CHOICES∗

This article proposes and empirically implements a structural model of education choices and wage determination to quantitatively evaluate the contributions of productivity enhancement and ability signaling in the college wage premium. The model is estimated under various distributional parameterizations using 1990 U.S. Census 5% Public Use Micro Sample. Under these parameterizations, I find that college education enhances attendees’ productivity by about 40%, and productivity enhancement accounts for close to two-thirds of the college wage premium.