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Employer Learning and Schooling-Related Statistical Discrimination in Britain

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  • Fernando Galindo-Rueda

Abstract

This paper develops and tests a new model of asymmetric information in the labour market involving employer learning. In the model, I provide theoretical conditions for the identification – based on the experience and tenure profiles of estimated returns to ability and education – of employer learning about unobserved worker’s productivity and statistical discrimination based on years of schooling. Using data from two British birth cohorts, estimates based on this model support the hypothesis that British employers have limited information about their workers, make inferences based on their education levels, and progressively learn about their true ability. Moreover, this learning process – particularly among blue-collar workers– favours incumbent employers relative to potential competitors (asymmetric learning). This informational advantage implies an additional distortion in the functioning of the labour market and policy evaluation rarely takes into account the informational impact of interventions and its implications for individual behaviour.

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Bibliographic Info

Paper provided by Centre for the Economics of Education, LSE in its series CEE Discussion Papers with number 0031.

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Date of creation: May 2003
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Handle: RePEc:cep:ceedps:0031

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Web page: http://cee.lse.ac.uk/publications.htm

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  1. Bauer, Thomas K. & Haisken-DeNew, John P., 2000. "Employer Learning and the Returns to Schooling," IZA Discussion Papers 146, Institute for the Study of Labor (IZA).
  2. Henry S. Farber & Robert Gibbons, 1994. "Learning and Wage Dynamics," Working Papers 707, Princeton University, Department of Economics, Industrial Relations Section..
  3. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  4. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  5. Andrew Jenkins, 2001. "Companies use of psychometric testing and the changing demand for skills: A review of the literature," CEE Discussion Papers 0012, Centre for the Economics of Education, LSE.
  6. Cawley, John & Heckman, James & Vytlacil, Edward, 2001. "Three observations on wages and measured cognitive ability," Labour Economics, Elsevier, vol. 8(4), pages 419-442, September.
  7. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
  8. 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.
  9. 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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Cited by:
  1. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," Discussion Paper Series, Department of Economics 201307, Department of Economics, University of St. Andrews, revised 14 Oct 2013.
  2. Fabian Lange, 2005. "The Returns to Schooling and Ability During the Early Career: Evidence on Employer Learning and Post-School Investment," 2005 Meeting Papers 253, Society for Economic Dynamics.
  3. Koerselman, Kristian, 2011. "Bias from the use of mean-based methods on test scores," Working Paper Series 1/2011, Swedish Institute for Social Research.
  4. Barbara Mueller & Stefan C. Wolter, 2011. "The consequences of being different – Statistical discrimination and the school-to-work transition," Economics of Education Working Paper Series 0053, University of Zurich, Institute for Strategy and Business Economics (ISU).
  5. 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.
  6. Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany.
  7. NAKABAYASHI, Masaki, 2011. "Acquired Skills and Learned Abilities: Wage Dynamics in Internal Labor Markets," ISS Discussion Paper Series (series F) f153, Institute of Social Science, The University of Tokyo, revised 07 Feb 2014.
  8. Nakabayashi, Masaki, 2011. "Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s," MPRA Paper 30597, University Library of Munich, Germany.
  9. Néria Rodréguez-Planas, 2011. "Displacement, Signaling, and Recall Expectations," Working Papers 550, Barcelona Graduate School of Economics.

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