On October 4th 1957, the Soviet Union launched the world’s first man-made satellite,
Sputnik 1, into an elliptical low Earth orbit. This surprise triggered an arms race between
the United States and the Soviet Union, as well as science-oriented educational reform in
the U.S. Sputnik sparked changes for the U.S. in military, politics, policies, and
education. The launch of Sputnik woke Americans up from complacency came from
technology, science, and educational superiority. Educational reform started with
emphasizing science and defense education and it was expanded to all levels of
education. Early reforms, the National Science Foundation (NSF), and the National
Defense Education Act (NDEA) of 1958 were focused on science and defense education
during Eisenhower’s administration. Domestic programs such as Civil Rights and Great
Society diffused educational policy to produce more general human capitals for improve
poverty and economic growth during the administrations of Kennedy and Johnson. The
Higher Education Act (HEA) of 1965 was enacted to support postsecondary education. I
assert that these policy outputs have contributed to the dramatic increase in the supply of
college graduates since 1960. This study begins with emphasizing the Soviet launching of
Sputnik and educational reform in early 1960s in U.S. as a cause and effect relationship.
Analysis focuses on the policy process of educational reform by applying Kingdon’s
multiple streams model, and on the economic effects of increase in the supply of college
graduates by applying Acemoglu’s theory, the pooling and separating equilibria (1999).
According to Acemoglu, economy transitions from initial pooling equilibrium to
separating equilibrium as supply of high skilled labor increases and thus labor markets
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show different patterns in unemployment rates and wage structures for skilled and
unskilled, as well as job mismatch. I find that occupational segregation at the state labor
markets increases corresponding to supply of college graduates, and overeducation
decreases as occupational segregation increases. Moreover, occupational segregation has
positive wage effects and wage penalty from overeducation becomes smaller in states
where occupations are more separated between the skilled and the unskilled. College
graduates earn more wage premiums in states where occupations are more separated
between the skilled and the unskilled.