Growth in College Education and Wage Differentials in Korea

This paper investigates how overall wage structure has responded to changing labor supplies in Korea between 1978 and 2002, with the main emphasis on changes in educational and age distributions of labor supply during the period. These supply changes mostly reflect ever-increasingly educated new cohorts of varying sizes, and it bears critical importance in understanding labor market mechanism to see how these entry-level changes are absorbed in Korea's market. The main findings are as follows. Both educational upgrading and changing cohort sizes, despite being entry-level changes, have a strongly common effect on all age groups in such a way that their wages highly co-move. The commonness in wage movements arises because workers of varying ages are good substitutes for each other within education. Age structure of wages has relatively been stable within each education, implying that there exists almost a single wage rate within education. Consequently, the time-series patterns of college premiums are accounted for mostly by changes in the single prices. In addition, differences in cohort-specific productivities between high-school and college graduates account for some of the remaining variations.