If in the 80’s a growing percentage of graduates were unable to find jobs requiring a college degree and could only find unskilled jobs, then, it appears, the competition for graduates would not have increased. Since even non-graduates could take unskilled jobs, the analysts’ hypothesis that salaries for graduates would have gone up because of increased competition for them doesn’t make sense.

Are you wondering what if these unskilled jobs paid more to degree holders?
That is possible. But these are unskilled jobs, so I’m thinking that probably the pay would be the same.
Nevertheless, even if this possibility exists, the answer choice does undermine the explanation. The correct answer need not destroy the explanation.

Some people eliminate answer choice A after deciding that it does not present an alternative explanation. However, such reasoning is incomplete. While the answer choice doesn’t provide an alternative reason, it does reduce our belief in the current explanation. And that’s all we are looking for.

The overall average age of employees increased – across graduate and non-graduate employees. This option does not differentiate between graduates and non-graduates. No impact.

Statement: The level of employment pretty much remained constant. 

This answer choice, just like option B, does not differentiate between graduates and non-graduates. This option does not lead me to believe more or less in the increased competition hypothesis. No impact.

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Statement: The difference in average income between advanced degrees-holders and bachelor’s degrees-holders also increased.

In whose favor did the difference increase?

Well, even if we take this option to indicate that either bachelor’s degree-holders or advanced degree-holders had started earning more, what we are after are the reasons behind the increase.
This answer choice actually strengthens the given reasoning by indicating that one segment within the degree-holders had started earning more than the other. So perhaps the difference between graduates and non-graduates did not increase because of the non-graduates’ income going down.

Statement: At least one non-graduate earned an income close to the top incomes earned by graduates.

This answer choice is the most commonly selected wrong answer.

In order to understand why this answer choice is incorrect, first let’s replace the word ‘some’ with ‘many’.

(E’) During the 1980s there were MANY employees with no college degree who earned incomes comparable to the top incomes earned by employees with a college degree.

Would this modified statement undermine the explanation?

Remember, the explanation we need to undermine is that the increased competition for graduates drove up their income and that led to the increased difference between the average salaries.

Our job is not to question whether the difference between the average salaries did actually double or not.

The difference did double. 

Our job is to question the given reason behind it.

After reading this statement, I am simply more confused about how the difference between graduates’ and non-graduates’ average salaries doubled.
Through this answer choice I do not learn anything new about what might or might not have caused the difference to double.

The answer choice is wrong even if we replace the word ‘many’ back with ‘some’. The same reasoning still applies. We have to undermine the explanation. We do not have to undermine the fact that the difference in average annual incomes doubled. 

Additional Notes

Between 1980 and 1990 = During the 1980s