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Education, Signaling, and Wage Inequality in a Dynamic Economy

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  • Yuki, Kazuhiro

Abstract

Many 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16982.

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Date of creation: Jul 2009
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Handle: RePEc:pra:mprapa:16982

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Keywords: Human capital; Education; Signaling; Statistical discrimination; Credit constraint;

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References

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  1. Galindo-Rueda, Fernando, 2003. "Employer Learning and Schooling-Related Statistical Discrimination in Britain," IZA Discussion Papers 778, Institute for the Study of Labor (IZA).
  2. Kelly Bedard, . "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Canadian International Labour Network Working Papers 19, McMaster University.
  3. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  4. Chevalier, Arnaud & Harmon, Colm & Walker, Ian & Zhu, Yu, 2003. "Does Education Raise Productivity or Just Reflect It?," CEPR Discussion Papers 3993, C.E.P.R. Discussion Papers.
  5. Kazuhiro Yuki, 2005. "Sectoral Shift, Wealth Distribution, and Development," Development and Comp Systems 0509001, EconWPA.
  6. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  7. Igal Hendel & Joel Shapiro & Paul Willen, 2003. "Educational Opportunity and Income Inequality," Working Papers 89, Barcelona Graduate School of Economics.
  8. Ulla Hämäläinen & Roope Uusitalo, 2008. "Signalling or Human Capital: Evidence from the Finnish Polytechnic School Reform," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 755-775, December.
  9. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  10. Yuki, Kazuhiro, 2007. "Urbanization, informal sector, and development," Journal of Development Economics, Elsevier, vol. 84(1), pages 76-103, September.
  11. Strobl, Eric, 2003. "Is Education Used as a Signaling Device for Productivity in Developing Countries? Evidence from Ghana," IZA Discussion Papers 683, Institute for the Study of Labor (IZA).
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Cited by:
  1. Yuki, Kazuhiro, 2012. "Stereotypes, segregation, and ethnic inequality," MPRA Paper 39704, University Library of Munich, Germany.

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