Beyond Signaling and Human Capital: Education and the Revelation of Ability
AbstractIn traditional signaling models, education provides a way for individuals to sort themselves by ability. Employers in turn use education to statistically discriminate, paying wages that reflect the average productivity of workers with the same given level of education. In this paper, we provide evidence that education (specifically, attending college) plays a much more direct role in revealing ability to the labor market. We use the NLSY79 to examine returns to ability early in careers; our results suggest that ability is observed nearly perfectly for college graduates but is revealed to the labor market much more gradually for high school graduates. As a result, from very beginning of the career, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially completely unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and the returns to ability. In particular, we find no racial differences in wages or returns to ability in the college labor market, but a 6-10 percent wage penalty for blacks (conditional on ability) in the high school market. These results are consistent with the notion that employers use race to statistically discriminate in the high school market but have no need to do so in the college market. That blacks face a wage penalty in the high school but not the college labor market also helps to explains why, conditional on ability, blacks are more likely to earn a college degree, a fact that has been documented in the literature but for which a full explanation has yet to emerge.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13951.
Date of creation: Apr 2008
Date of revision:
Note: ED LS
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Peter Arcidiacono & Patrick Bayer & Aurel Hizmo, 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 76-104, October.
- Patrick J. Bayer & Peter Arcidiacono & Aurel Hizmo, 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," Working Papers 10-51, Duke University, Department of Economics.
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, and Immigrants; Non-labor Discrimination
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J7 - Labor and Demographic Economics - - Labor Discrimination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-21 (All new papers)
- NEP-EDU-2008-04-21 (Education)
- NEP-HRM-2008-04-21 (Human Capital & Human Resource Management)
- NEP-LAB-2008-04-21 (Labour Economics)
- NEP-URE-2008-04-21 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Arcidiacono, 2005. "Affirmative Action in Higher Education: How Do Admission and Financial Aid Rules Affect Future Earnings?," Econometrica, Econometric Society, vol. 73(5), pages 1477-1524, 09.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.