Education, Signaling, and Wage Inequality in a Dynamic Economy
AbstractMany empirical works suggest that education has a positive effect on earnings not only because it raises human capital but also because it functions as a signal when employers have incomplete information on employees' skills. The signaling role could have important consequences on the dynamics of education, wages, and wage distribution when there exist intergenerational linkages in educational decisions. This paper examines the dynamic effects in an economy where education has the dual roles and some fraction of individuals is credit constrained from taking education. In particular, it investigates how the number of educated individuals, the importance of the signaling value of education, and the wage inequality between educated and uneducated workers change over time in such economy, and compares the dynamics with those when education does not function as a signal. It also examines whether the signaling role leads to higher aggregate consumption or not in the long run.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16982.
Date of creation: Jul 2009
Date of revision:
Human capital; Education; Signaling; Statistical discrimination; Credit constraint;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- I20 - Health, Education, and Welfare - - Education - - - General
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-05 (All new papers)
- NEP-CTA-2009-09-05 (Contract Theory & Applications)
- NEP-EDU-2009-09-05 (Education)
- NEP-HRM-2009-09-05 (Human Capital & Human Resource Management)
- NEP-LAB-2009-09-05 (Labour Economics)
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