Abstract: We examine the impact of trends in the pre-college distribution of male worker cognitive and non-cognitive ability on wage inequality. We match Finnish conscripts’ test results with educational and labor market outcomes. The increase in college attainment has resulted in less selected college-goers in terms of within-cohort skill percentiles, but the positive trend in ability has neutralized this dilution in terms of ability levels. Cognitive and non-cognitive skills have positive returns for both college and non-college educated men. The change in skill distribution has increased the college wage premium by 3 log points and ignoring the changes in the skill distribution would underestimate the wage differences across education groups.
With Matti Sarvimäki, Marko Terviö, and Roope Uusitalo
