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Employer Learning and Schooling-Related Statistical Discrimination in Britain

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  • Galindo-Rueda, Fernando

    ()
    (Office of National Statistics)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 778.

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Length: 34 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:iza:izadps:dp778

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Related research

Keywords: employer learning; statistical discrimination; asymmetric information; unobserved ability;

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References

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  1. Bauer, Thomas & Haisken-DeNew, John P, 2000. "Employer Learning And The Returns To Schooling," CEPR Discussion Papers 2445, C.E.P.R. Discussion Papers.
  2. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October.
  3. 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.
  4. 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.
  5. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  6. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
  7. Henry S. Farber & Robert Gibbons, 1997. "Learning and Wage Dynamics," NBER Working Papers 3764, National Bureau of Economic Research, Inc.
  8. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  9. 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.
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Citations

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Cited by:
  1. Mueller, Barbara & Wolter, Stefan C., 2011. "The Consequences of Being Different: Statistical Discrimination and the School-to-Work Transition," IZA Discussion Papers 5474, Institute for the Study of Labor (IZA).
  2. Koerselman, Kristian, 2011. "Bias from the use of mean-based methods on test scores," Working Paper Series 1/2011, Swedish Institute for Social Research.
  3. 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.
  4. Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany.
  5. Néria Rodréguez-Planas, 2011. "Displacement, Signaling, and Recall Expectations," Working Papers 550, Barcelona Graduate School of Economics.
  6. 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 13 Apr 2014.
  7. 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.
  8. 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.
  9. 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.

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