Internal and External Wage Effects Associated with a Changing Share of College Graduates

by Zhang, Li

The main objective of this research is to estimate internal and external wage effects associated with a changing share of college graduates in Canada. This paper uses data drawn from the Canadian 1991, 1996, and 2001 Public Use Microdata File for 25 to 65 years old individuals working full-time and full-year in metropolitan areas. These workers are then separated into four different levels of education groups in order to estimate the effect of change in the share of college-educated workers on their earnings.

The Ordinary Least Squares (OLS) estimates, controlling for potential work experience, total years of schooling, individual occupation, employment industry, immigration status, visible minority status, show a significant positive relationship between the percentage change of the share of college-educated workers and the percentage change of individuals real weekly wage rates. We found that one percentage point increase in a census metropolitan areas share of college-graduated workers was associated with a 0.35 percentage change in all workers wage rates in that city. For separated education groups, our results showed that a one percentage expansion in the supply of college-graduated workers raised less than high schools wage rate by 0.245 percent, raised high-school graduates wage rate by 0.363 percent, raised more than college-educated workers wage rate by 0.385 percent, and raised college-educated wage rate by 0.326 percentage. These results are consistent with the conclusion arrived at by E. Moretti, (2004) that all types of workers earnings increased when a citys share of college graduates rose.