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Does Education Raise Productivity, or Just Reflect it?

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  • Arnaud Chevalier
  • Colm Harmon
  • Ian Walker
  • Yu Zhu

Abstract

Education has an important effect on wages but it not clear whether this is because education raises productivity or because education is simply a signal of ability. We implement a number of existing tests for discriminating between these two explanations and find that they do not support the signalling hypothesis. However, we have severe reservations about these results and we propose an alternative test based on changes in education incentives caused by changes in the minimum school leaving age in the 1970s. Using this idea we find that UK data appear to strongly support the human capital explanation. Copyright 2004 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 499 (November)
Pages: F499-F517

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:499:p:f499-f517

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  1. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics, Finance and Accounting Department Working Paper Series n540195, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Layard, Richard & Psacharopoulos, George, 1974. "The Screening Hypothesis and the Returns to Education," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 985-98, Sept./Oct.
  3. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
  4. Lazear, Edward, 1977. "Academic Achievement and Job Performance: Note," American Economic Review, American Economic Association, vol. 67(2), pages 252-54, March.
  5. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating The Payoff To Attending A More Selective College: An Application Of Selection On Observables And Unobservables," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1491-1527, November.
  6. Abigail McKnight & Robin Naylor & Jeremy Smith, 2002. "Sheer Class? The Extent and Sources of Variation in the UK Graduate Earnings Premium," CASE Papers case54, Centre for Analysis of Social Exclusion, LSE.
  7. Arnaud Chevalier, 2000. "Graduate over-education in the UK," CEE Discussion Papers 0007, Centre for the Economics of Education, LSE.
  8. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  9. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2004. "Evaluating the impact of education on earnings in the UK: models, methods and results from the NCDS," LSE Research Online Documents on Economics 19451, London School of Economics and Political Science, LSE Library.
  10. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2003. "Dispersion in the economic return to schooling," Labour Economics, Elsevier, vol. 10(2), pages 205-214, April.
  11. William N. Evans & Edward Montgomery, 1994. "Education and Health: Where There's Smoke There's an Instrument," NBER Working Papers 4949, National Bureau of Economic Research, Inc.
  12. Joseph G. Altonji & Charles R. Pierret, . "Employer Learning and Statistical Discrimination," IPR working papers 97-18, Institute for Policy Resarch at Northwestern University.
  13. Miller, Paul W & Volker, Paul A, 1984. "The Screening Hypothesis: An Application of the Wiles Test," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 121-27, January.
  14. Eugene A. Kroch & Kriss Sjoblom, 1994. "Schooling as Human Capital or a Signal: Some Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 29(1), pages 156-180.
  15. Brown, Sarah & Sessions, John G., 1999. "Education and employment status: a test of the strong screening hypothesis in Italy," Economics of Education Review, Elsevier, vol. 18(4), pages 397-404, October.
  16. Taubman, Paul J & Wales, Terence J, 1973. "Higher Education, Mental Ability, and Screening," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 28-55, Jan.-Feb..
  17. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  18. Groot, Wim & Oosterbeek, Hessel, 1994. "Earnings Effects of Different Components of Schooling: Human Capital versus Screening," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 317-21, May.
  19. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-77, February.
  20. Dolton, Peter & Vignoles, Anna, 2000. "The incidence and effects of overeducation in the U.K. graduate labour market," Economics of Education Review, Elsevier, vol. 19(2), pages 179-198, April.
  21. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October.
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