The Shrinking Earnings Premium for University Graduates in Hong Kong: The Effect of Quantity or Quality?

Abstract

In 1989, the Hong Kong government embarked on a program to increase the provision of first-year first-degree places. The expansion of tertiary education represents a large and exogenous increase in the supply of university graduates to the territory. This article measures the labor market effects of the expansion program by studying the changes in earnings premium for university graduates. Two alternative hypotheses—crowding and quality effects—are identified to explain why the earnings premium shrank. The results support the view that the declining quality of university graduates is the prime candidate for the declining earnings premium. (JEL J31, I28, J18)