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Does Education Raise Productivity, or Just Reflect it?

  • Arnaud Chevalier
  • Colm Harmon
  • Ian Walker
  • Yu Zhu

Education has an important effect on wages but it not clear whether this is because education raises productivity or because education is simply a signal of ability. We implement a number of existing tests for discriminating between these two explanations and find that they do not support the signalling hypothesis. However, we have severe reservations about these results and we propose an alternative test based on changes in education incentives caused by changes in the minimum school leaving age in the 1970s. Using this idea we find that UK data appear to strongly support the human capital explanation. Copyright 2004 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 499 (November)
Pages: F499-F517

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:499:p:f499-f517
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  17. Eugene A. Kroch & Kriss Sjoblom, 1994. "Schooling as Human Capital or a Signal: Some Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 29(1), pages 156-180.
  18. 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.
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