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A spillover-based theory of credentialism

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  • Chris Bidner

Abstract

I propose a model in which credentials, such as diplomas, are instrumentally valuable to workers. The model avoids an important criticism of standard job market signalling models by tying a worker's wage to their output. A worker's productivity is influenced by the skills of their coworkers, where such skills arise from an abilityaugmenting investment that is made prior to matching with coworkers. Credentials allow workers to demonstrate their investment to the labour market, thereby allowing them to match with highskill coworkers in equilibrium. Despite the positive externality associated with a worker's investment, I show how overinvestment is pervasive in equilibrium.

Suggested Citation

  • Chris Bidner, 2014. "A spillover-based theory of credentialism," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1387-1425, November.
  • Handle: RePEc:cje:issued:v:47:y:2014:i:4:p:1387-1425
    DOI: 10.1111/caje.12110
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    Cited by:

    1. Masashi Tanaka, 2020. "Human capital investment, credentialing, and wage differentials," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 992-1016, August.
    2. Bilancini, Ennio & Boncinelli, Leonardo, 2014. "Instrumental cardinal concerns for social status in two-sided matching with non-transferable utility," European Economic Review, Elsevier, vol. 67(C), pages 174-189.
    3. Richard Chisik, 2015. "Job market signalling, stereotype threat and counter-stereotypical behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 48(1), pages 155-188, February.
    4. Bidner, Chris, 2010. "Pre-match investment with frictions," Games and Economic Behavior, Elsevier, vol. 68(1), pages 23-34, January.
    5. Nick Huntington-Klein, 2021. "Human capital versus signaling is empirically unresolvable," Empirical Economics, Springer, vol. 60(5), pages 2499-2531, May.
    6. Păcurariu Gabriela, 2019. "The Integration of Higher Education Graduates on the Labor Market," European Review of Applied Sociology, Sciendo, vol. 12(19), pages 23-32, December.
    7. Masashi Tanaka, 2013. "Human Capital Investment, Credentialing, and Wage Differentials," Discussion Papers in Economics and Business 13-31-Rev., Osaka University, Graduate School of Economics, revised Aug 2017.
    8. Chris Bidner & Guillaume Roger & Jessica Moses, 2016. "Investing in Skill and Searching for Coworkers: Endogenous Participation in a Matching Market," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 166-202, February.
    9. Thomas Gall & Patrick Legros & Andrew Newman, 2015. "College Diversity and Investment Incentives," Working Papers 2015-001, Human Capital and Economic Opportunity Working Group.
    10. Gall, Thomas & Legros, Patrick & Newman, Andrew, 2012. "Mismatch, rematch, and investment," Discussion Paper Series In Economics And Econometrics 189, Economics Division, School of Social Sciences, University of Southampton.

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    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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