Math Matters: Education Choices and Wage Inequality (with Andrew Rendall)

Michelle Rendall | University of Zurich

Standard SBTC is a powerful mechanism in explaining the increasing wage gap between educated and uneducated individuals. However, SBTC cannot explain within- group wage inequality in the US. This paper provides an explanation for the observed intra-college group inequality by showing that the top decile earners’ significant wage growth is underpinned by the link between ex ante ability, math-heavy college majors and highly quantitative occupations. We develop a general equilibrium model with multiple education outcomes, where wages are driven by individuals’ ex ante abilities and acquired math skills. A large portion of within-group and general wage inequality is explained by math-biased technical change (MBTC).