Rising Inequality Among College Graduates: Looking at the Labor Demand Side

This paper uses a large-scale administrative earnings dataset to study the sustainability of fast higher education expansion in Portugal. We account for changes in skill demand in graduate labour markets, growing occupational diversity and the incidence of overeducation. We then decompose higher education wage premiums into composition and return effects and show that, despite the decrease and growing heterogeneity of graduates’ premiums from 1995 to 2009, these have remained stable or have increased within specific jobs. We then argue that, in addition to the increase in the dispersion of workers’ innate or educational characteristics, job heterogeneity and the occupational restructuring of graduate labour markets should be seen as direct determinants of earnings inequality. Graduates’ increasing presence in data-processing occupations, in particular, played a significant role in reducing university graduates’ average premiums relative to high-school graduates. This demand-side story then help us to make sense of two apparently contradictory trends in this literature, namely the persistence of high premiums despite sharp increases in the supply of tertiary qualifications and  the growing incidence of overeducation. We finally discuss whether Portugal can still be portrayed as a success story regarding mass higher education.