Does Speed Signal Ability? The Impact of Grade Repetitions on Employment and Wages
AbstractWe propose a new test for the presence of job-market signalling in the sense of Spence (1973), based on an equation in which log-wages are explained by two endogenous variables: the student's degree and the student's time to degree, not simply by years of education. Log-wages are regressed on a measure of education, which is a position on a scale of certificates and degrees, and a measure of the student delay, defined as the difference between the individual's school-leaving age and the average school-leaving age of students holding the same certificate or degree. We use past school-opening instruments, and distance-to-the-nearest-college, also measured in the past, when students were entering grade 6, to identify the parameters. We find a robust, significant and negative impact of the delay variable on wages, averaged over the first five years of career. A year of delay causes a 9% decrease of the student's wage. The only reasonable explanation for this effect is the fact that longer delays signal unobserved characteristics with a negative productivity value. We finally estimate a nonlinear model of education choices and cannot reject the assumption that the data is generated by a job-market signalling equilibrium.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6832.
Date of creation: May 2008
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Find related papers by JEL classification:
- I2 - Health, Education, and Welfare - - Education
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-31 (All new papers)
- NEP-CTA-2008-05-31 (Contract Theory & Applications)
- NEP-EDU-2008-05-31 (Education)
- NEP-HRM-2008-05-31 (Human Capital & Human Resource Management)
- NEP-LAB-2008-05-31 (Labour Economics)
- NEP-URE-2008-05-31 (Urban & Real Estate Economics)
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