The role of graduate education in the rising wage premium for professional and managerial occupations, 1980–2019

Abstract Part of the rise in US wage inequality comes from a widening gap between professional/managerial (PM) and other occupations (NPM). We examine the role of education in the trend in this gap from 1980 to 2019. Prior research typically combined all college graduates in one category, but we highlight the distinctive role of graduate degrees. Since 1980, NPM occupations have never had as many as five percent with a graduate degree, but by 2019, thirty-six percent of individuals in PM occupations had a graduate degree. Using a decomposition-of-change technique, we show that the increased gap between NPM and PM in the proportion of their workers with graduate degrees explains nineteen percent of the growth in the gap. A two-way fixed-effects analysis shows that those occupations that increased their proportion of workers with a graduate degree more had steeper wage growth. Wage returns rose modestly for BA/BS degrees and dramatically for having a graduate degree. However, a BA/BS degree was less likely to get one a PM job in 2019 than in 1980, whereas a graduate degree was just as likely to get one PM job in 2019 as in 1980. We discuss how our findings fit predictions from three theoretical perspectives emphasizing skill-biased technological change, the expanding knowledge economy, and increased credentialism.