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Employer Learning and the Signalling Value of Education

In: Internal Labour Markets, Incentives and Employment

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  • Joseph G. Altonji
  • Charles R. Pierret

Abstract

If firms have limited information about productivity or the personal attributes that determine productivity (such as knowledge, aptitude, and motivation), they will have an incentive to ‘statistically discriminate’ among young workers on the basis of easily observable variables that are correlated with productivity, such as education.1 By the same token, the signalling value of education is likely to be an important part of the return to education only to the extent that firms lack good information about the productivity of new workers and learn slowly over time. In this chapter, we provide some preliminary evidence on how much firms know about new workers and how quickly they learn over time and then use this information to address the issue of how much of the return to education could be due to signalling rather than to the direct effect of education on productivity.

Suggested Citation

  • Joseph G. Altonji & Charles R. Pierret, 1998. "Employer Learning and the Signalling Value of Education," Palgrave Macmillan Books, in: Isao Ohashi & Toshiaki Tachibanaki (ed.), Internal Labour Markets, Incentives and Employment, chapter 8, pages 159-195, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37797-4_8
    DOI: 10.1057/9780230377974_8
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    References listed on IDEAS

    as
    1. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
    2. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
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    Cited by:

    1. Murnane, Richard J. & Willett, John B. & Braatz, M. Jay & Duhaldeborde, Yves, 2001. "Do different dimensions of male high school students' skills predict labor market success a decade later? Evidence from the NLSY," Economics of Education Review, Elsevier, vol. 20(4), pages 311-320, August.
    2. Oreopoulos, Philip & Heisz, Andrew, 2006. "The Importance of Signalling in Job Placement and Promotion," Analytical Studies Branch Research Paper Series 2006236e, Statistics Canada, Analytical Studies Branch.
    3. John H. Tyler & Richard J. Murnane & John B. Willett, 2000. "Do the Cognitive Skills of School Dropouts Matter in the Labor Market?," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 748-754.
    4. Bauer, Thomas K. & Haisken-DeNew, John P., 2001. "Employer learning and the returns to schooling," Labour Economics, Elsevier, vol. 8(2), pages 161-180, May.
    5. Galindo-Rueda, Fernando, 2003. "Employer learning and schooling-related statistical discrimination in Britain," LSE Research Online Documents on Economics 19491, London School of Economics and Political Science, LSE Library.
    6. James W. Albrecht & Jan C. Van Ours, 2006. "Using Employer Hiring Behavior to Test the Educational Signaling Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(3), pages 361-372, October.
    7. Carrillo-Tudela, Carlos & Kaas, Leo, 2015. "Worker mobility in a search model with adverse selection," Journal of Economic Theory, Elsevier, vol. 160(C), pages 340-386.
    8. Michael J. Podgursky & Matthew G. Springer, 2007. "Teacher performance pay: A review," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(4), pages 909-950.
    9. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," CDMA Working Paper Series 201307, Centre for Dynamic Macroeconomic Analysis, revised 14 Oct 2013.
    10. Holzer, Harry & Neumark, David, 1999. "Are Affirmative Action Hires Less Qualified? Evidence from Employer-Employee Data on New Hires," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 534-569, July.
    11. Altonjii, Joseph G., 2005. "Employer Learning, Statistical Discrimination and Occupational Attainment," Working Papers 3, Yale University, Department of Economics.
    12. Perri, Timothy J., 2002. "Signaling versus contingent contracts with costly turnover," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 365-374, August.
    13. Tyler, John H., 2004. "Basic skills and the earnings of dropouts," Economics of Education Review, Elsevier, vol. 23(3), pages 221-235, June.
    14. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 313-350.
    15. Steven Jacob Bosworth, 2019. "Higher education fees as signals," Economics Discussion Papers em-dp2019-16, Department of Economics, University of Reading.
    16. Albareto, G. & Mistrulli, P.E., 2010. "Bridging the gap between migrants and the banking system," MPRA Paper 26476, University Library of Munich, Germany.
    17. Richard J. Murnane & John B. Willett & Yves Duhaldeborde & John H. Tyler, 2000. "How important are the cognitive skills of teenagers in predicting subsequent earnings?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(4), pages 547-568.
    18. Domeland, Dorte, 2007. "Trade and human capital accumulation: evidence from U.S. immigrants," Policy Research Working Paper Series 4144, The World Bank.
    19. Oreopoulos, Philip & Heisz, Andrew, 2006. "Importance des signaux de competence pour l'obtention d'un emploi et de l'avancement," Direction des études analytiques : documents de recherche 2006236f, Statistics Canada, Direction des études analytiques.
    20. Christopher Freiman, 2017. "Poverty, partiality, and the purchase of expensive education," Politics, Philosophy & Economics, , vol. 16(1), pages 25-46, February.
    21. H. J. Holzer, "undated". "Employer skill needs and labor market outcome by race and gender," Institute for Research on Poverty Discussion Papers 1087-96, University of Wisconsin Institute for Research on Poverty.

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    More about this item

    Keywords

    Instrumental Variable; Potential Experience; Wage Equation; Statistical Discrimination; Fourth Order Polynomial;
    All these keywords.

    JEL classification:

    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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