Why is the College Premium Falling? The Role of Composition

Recent studies suggest that the increasing supply of college-educated workers in Latin America has reduced returns to skill, as evidenced by the decreasing college premium. We show that the college premium does not accurately represent returns to skill, particularly in the context of significant expansions in tertiary education. Using novel data from Brazil, we find that returns to skill actually increased by 24% over 16 years, as graduates increasingly came from newer, lower-ranked universities. Using a simple supply and demand framework, we show that skill-biased technical change grew by 3% annually, in contrast to the apparent -0.1% yearly decrease.