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Job Matching and the Returns to Educational Signals

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  • Habermalz, Steffen

    ()
    (Northwestern University)

Abstract

This paper develops a multi-period model, in which workers are matched with jobs according to imperfect educational signals and in which their subsequent productivities depend on both their inherent ability and on the quality of the job match. It outlines a sequential process, in which underpaid employees reveal their true productivities and overpaid employees are detected by the firm until every match is perfect. The model produces a time path of the returns to educational signals that is concave, a feature that earlier studies used to dismiss educational signaling. Using a synthetic panel data set from the Current Population Survey the theoretical result is then substantiated empirically. The paper contributes to the literature by establishing the possibility of increasing returns to education over part of a workers life within the signaling framework theoretically and empirically.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 726.

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Length: 30 pages
Date of creation: Feb 2003
Date of revision:
Publication status: published as 'More Detail on the Pattern of Returns to Educational Signals' in: Southern Economic Journal, 2006, 73 (1), 125–135
Handle: RePEc:iza:izadps:dp726

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Related research

Keywords: returns to education; signaling; job matching; information;

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References

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  1. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer learning and statistical discrimination," Working Paper Series, Macroeconomic Issues WP-97-11, Federal Reserve Bank of Chicago.
  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. Stiglitz, Joseph E., 2001. "Information and the Change in the Paradigm in Economics," Nobel Prize in Economics documents 2001-8, Nobel Prize Committee.
  4. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November.
  5. Belman, Dale & Heywood, John S, 1997. "Sheepskin Effects by Cohort: Implications of Job Matching in a Signaling Model," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 623-37, October.
  6. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  7. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  8. Heywood, John S., 1994. "How widespread are sheepskin returns to education in the U.S.?," Economics of Education Review, Elsevier, vol. 13(3), pages 227-234, September.
  9. Kelly Bedard, . "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Claremont Colleges Working Papers 1999-01, Claremont Colleges.
  10. Michael Spence, 2002. "Signaling in Retrospect and the Informational Structure of Markets," American Economic Review, American Economic Association, vol. 92(3), pages 434-459, June.
  11. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October.
  12. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  13. 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.
  14. Stephen V. Cameron & James J. Heckman, 1991. "The Nonequivalence of High School Equivalents," NBER Working Papers 3804, National Bureau of Economic Research, Inc.
  15. Ann P. Bartel & George J. Borjas, 1978. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Working Papers 0285, National Bureau of Economic Research, Inc.
  16. Belman, Dale & Heywood, John S, 1991. "Sheepskin Effects in the Returns to Education: An Examination on Women and Minorities," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 720-24, November.
  17. Riley, John G, 2002. " Weak and Strong Signals," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 213-36, June.
  18. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  19. Jaeger, David A & Page, Marianne E, 1996. "Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 733-40, November.
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Citations

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Cited by:
  1. Francesc Dilme & Fei Li:, 2012. "Dynamic Education Signaling with Dropout, Second Version," PIER Working Paper Archive 13-048, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Sep 2013.
  2. Hui, Taylor Shek-wai, 2004. "The “Sheepskin Effects” of Canadian Credentials," MPRA Paper 17994, University Library of Munich, Germany.
  3. Robert Gibbons & Michael Waldman, 2003. "Enriching a Theory of Wage and Promotion Dynamics Inside Firms," NBER Working Papers 9849, National Bureau of Economic Research, Inc.
  4. Francesc Dilme & Fei Li, 2012. "Dynamic Education Signaling with Dropout," PIER Working Paper Archive 12-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Francesc Dilme & Fei Li, 2013. "Dynamic Education Signaling with Dropout Risk, Third Version," PIER Working Paper Archive 14-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 24 Apr 2014.

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