Using regional variation to explain widening earnings differentials by educational attainment

During the 1980s and early 1990s the earnings gap between individuals with a college education and those with no more than a high school diploma widened substantially.Two leading explanations are technological improvement, either by increasing demand for skilled workers or by displacing unskilled and semi-skilled workers, and the effect of increased competition from imports. Since the late 1970s, aggregate wage growth has varied significantly across states and regions. Moreover, while wage differentials have widened in virtually all states and regions, there is considerable variation in the degree and timing of this widening. In this paper we develop indices, based on industry of employment, of technological advancement and of exposure to competition from manufactured imports for each state.These indices are used to test the impact of technological change and trade on earnings differentials by educational attainment.