One Plus One = Higher Wages

Few U.S. labor market trends have attracted as much public concern as the dramatic increase in earnings inequality since the 1970s. Most economists have attributed this development to structural shifts in the economy favoring technological skills. They note that the wage premiums enjoyed by college graduates compared with high school graduates took a big leap in recent decades.

But years of schooling and academic degrees are only part of the story, report Richard J. Murnane and John B. Willett of Harvard University's Graduate School of Education and Frank Levy of the Massachusetts Institute of Technology. In a study in the May issue of the Review of Economics and Statistics, the researchers show that the lack of math skills themselves have had a growing impact on wage dispersion in the economy.

Adjusting for race, family background, work experience, and other variables, the researchers analyzed the wage profiles of samples of two groups of workers: 24-year-old high school and college graduates in 1978, and 24-year-old high school and college grads in 1986. Both groups had been tested for basic math skills, such as using decimals and fractions and reading simple line graphs, when they were high school seniors six years earlier.

The study's findings: In 1978, there was only a 5% difference between the wages of young male college graduates who had exhibited a mastery of basic math while in high school and the wages of college grads with weak math scores in high school. But by 1986, young male college graduates with good math skills in high school were earning over 15% more than their peers who had scored poorly. Among young female workers with college degrees, the wage premium widened from 12% in 1978 to 25% in 1986.

The big surprise, however, was that the influence of math skills on wages was just as pronounced among high school graduates with no college attendance at all. By 1986, working 24-year-old high school grads who had scored well on math tests as seniors were earning $2,000 to $3,000 more a year than those with low scores.

To be sure, in 1986, 24-year-old male high school graduates with high math skills were still earning less than 24-year-olds with low skills earned in 1978, a sign of the dramatic decline in demand for less educated males over the 1980s. But the central message of the study, says Murnane, "is that a high school student's mastery of basic cognitive skills like math is an increasingly important determinant of subsequent wages--even if he or she doesn't go gn to college."

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