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Does education raise productivity, or just reflect it?

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Author Info
Arnaud Chevalier (University College Dublin)
Colm Harmon (University College Dublin)
Ian Walker (University of Warwick)
Yu Zhu (University of Kent)

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Abstract

It is clear that education has an important effect on wages paid in the labour market However it not clear whether this is due to the role that education plays in raising the productivity of workers (the human capital explanation) or whether education simply reflects the ability of the worker (through a signalling role). In this paper we describe and implement, using a variety of UK datasets, a number of tests from the existing literature for discriminating between the two explanations. We find little support for signalling ideas in these tests. However, we have severe reservations about these results because our doubts about the power of these tests and the appropriateness of the data. We propose an alternative test, based on the response of some individuals to a change in education incentives offered to other individuals caused by the changes in the minimum school leaving age in the seventies. Using this idea we find that data in the UK appears to strongly support the human capital explanation.

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File URL: http://www.ucd.ie/economics/research/papers/2003/WP03.04.pdf
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File Function: First version, 2003
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Publisher Info
Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200304.

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Length: 32 pages
Date of creation: 25 Jan 2003
Date of revision:
Handle: RePEc:ucn:wpaper:200304

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Related research
Keywords: human capital; signalling; screening;

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Find related papers by JEL classification:
I20 - Health, Education, and Welfare - - Education - - - General
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

References listed on IDEAS
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.:

  1. Miller, Paul W & Volker, Paul A, 1984. "The Screening Hypothesis: An Application of the Wiles Test," Economic Inquiry, Oxford University Press, vol. 22(1), pages 121-27, January.
  2. Dolton, Peter & Vignoles, Anna, 2000. "The incidence and effects of overeducation in the U.K. graduate labour market," Economics of Education Review, Elsevier, vol. 19(2), pages 179-198, April. [Downloadable!] (restricted)
  3. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!] (restricted)
  5. William N. Evans & Edward Montgomery, 1994. "Education and Health: Where There's Smoke There's an Instrument," NBER Working Papers 4949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating The Payoff To Attending A More Selective College: An Application Of Selection On Observables And Unobservables," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1491-1527, November. [Downloadable!] (restricted)
    Other versions:
  7. Harmon, C & Ian Walker, 1995. "Estimates of the economic return to schooling for the UK," IFS Working Papers W95/12, Institute for Fiscal Studies.
  8. Taubman, Paul J & Wales, Terence J, 1973. "Higher Education, Mental Ability, and Screening," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 28-55, Jan.-Feb.. [Downloadable!] (restricted)
  9. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2003. "Dispersion in the economic return to schooling," Labour Economics, Elsevier, vol. 10(2), pages 205-214, April. [Downloadable!] (restricted)
    Other versions:
  10. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning And Statistical Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 313-350, February. [Downloadable!] (restricted)
    Other versions:
  11. Lazear, Edward, 1977. "Academic Achievement and Job Performance: Note," American Economic Review, American Economic Association, vol. 67(2), pages 252-54, March. [Downloadable!] (restricted)
  12. Colm Harmon; & Ian Walker, 1995. "Estimates of Economic Return to Schooling in the UK," Economics, Finance and Accounting Department Working Paper Series n540195, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  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. [Downloadable!] (restricted)
  14. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2003. "Evaluating the impact of education on earnings in the UK: Models, methods and results from the NCDS," IFS Working Papers W03/20, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  15. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October. [Downloadable!] (restricted)
  16. Arnaud Chevalier, 2000. "Graduate over-education in the UK," CEE Discussion Papers 0007, Centre for the Economics of Education, LSE. [Downloadable!]
  17. Groot, Wim & Oosterbeek, Hessel, 1994. "Earnings Effects of Different Components of Schooling: Human Capital versus Screening," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 317-21, May. [Downloadable!] (restricted)
  18. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Chevalier, Arnaud & Harmon, Colm & O’Sullivan, Vincent & Walker, Ian, 2005. "The Impact of Parental Income and Education on the Schooling of Their Children," IZA Discussion Papers 1496, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Nohora Y. Forero Ramírez & Manuel Ramírez Gómez, 2008. "Determinantes de los ingresos laborales de los graduados universitarios en Colombia: un análisis a partir de la Herramienta de Seguimiento a Graduados," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  3. Melanie Jones & Paul Latreille & Peter Sloane, 2006. "Disability, Gender and the Labour Market in Wales," Regional Studies, Taylor and Francis Journals, vol. 40(8), pages 823-845, November. [Downloadable!] (restricted)
  4. Savanti, Maria Paula & Patrinos, Harry Anthony, 2005. "Rising returns to schooling in Argentina, 1992-2002 : productivity or credentialism?," Policy Research Working Paper Series 3714, The World Bank. [Downloadable!]
  5. repec:ese:iserwp: is not listed on IDEAS
  6. O'Leary, Nigel C. & Sloane, Peter J., 2005. "The Changing Wage Return to an Undergraduate Education," IZA Discussion Papers 1549, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Chris Sakellariou, 2005. "Profitability of Vocational vs. Formal Education for Men and Women in Singapore Using Quantile Regressions," Economic Growth centre Working Paper Series 0502, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre. [Downloadable!]
  8. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2003. "Evaluating the impact of education on earnings in the UK: Models, methods and results from the NCDS," IFS Working Papers W03/20, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  9. Massimiliano Bratti & Robin Naylor & Jeremy Smith, 2005. "Variations in the Wage Returns to a First Degree: Evidence from the British Cohort Study 1970," IZA Discussion Papers 1631, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  10. Eliasson, Kent, 2006. "The Role of Ability in Estimating the Returns to College Choice: New Swedish Evidence," UmeÃ¥ Economic Studies 691, Umeå University, Department of Economics. [Downloadable!]
  11. Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany. [Downloadable!]
  12. Nohora Y. Forero Ramírez & Manuel Ramírez Gómez, 2008. "Determinantes de los ingresos laborales de los graduados universitarios durante el período 2001-2004," DOCUMENTOS DE TRABAJO 004591, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  13. Marc Gurgand & Eric Maurin, 2007. "A large scale experiment: wages and educational expansion in France," PSE Working Papers 2007-21, PSE (Ecole normale supérieure). [Downloadable!]
    Other versions:
  14. Ian Walker & Yu Zhu, 2007. "The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK by and," Working Papers 200720, Geary Institute, University College Dublin. [Downloadable!]
  15. Ian Walker & Yu Zhu, 2005. "The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK," IZA Discussion Papers 1627, Institute for the Study of Labor (IZA). [Downloadable!]
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