The College Wealth Divide: Education and Inequality in America, 1956-2016

Abstract

It is a well-documented fact that the college wage premium has increased substantially since the 1980s (see, e.g., Levy and Murnane,1992; Katz and Autor, 1999; and Goldin and Katz 2007). This trend can be traced back to differences in the growth of the demand for and the supply of college-educated workers that are driven by skill-biased technical change, sociodemographic factors, and institutional features (Card and Lemieux, 2001, and Fortin, 2006). Recent work has begun to analyze the relationship between college education and wealth inequality (Emmons, Kent, and Ricketts, 2018, and Pfeffer, 2018) and demonstrates an increasing association between college education and wealth. Using new long-run microdata, this article studies wealth and income trends of households with a college degree (college households) and without a college degree (noncollege households) in the United States since 1956. We document the emergence of a substantial college wealth premium since the 1980s, which is considerably larger than the college income premium. Over the past four decades, the wealth of college households has tripled. By contrast, the wealth of noncollege households has barely grown in real terms over the same period. Part of the rising wealth gap can be traced back to systematic portfolio differences between college and noncollege households that give rise to different exposures to asset price changes. Noncollege households have lower exposure to the equity market and have profited much less from the recent surge in the stock market. We also discuss the importance of financial literacy and business ownership for the increase in wealth inequality between college and noncollege households. (JEL I24, E21, D31)

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