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Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices

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  • Hanming Fang

Abstract

This article proposes and empirically implements a structural model of education choices and wage determination to quantitatively evaluate the contributions of productivity enhancement and ability signaling in the college wage premium. The model is estimated under various distributional parameterizations using 1990 U.S. Census 5% Public Use Micro Sample. Under these parameterizations, I find that college education enhances attendees' productivity by about 40%, and productivity enhancement accounts for close to two-thirds of the college wage premium. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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  • Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
  • Handle: RePEc:ier:iecrev:v:47:y:2006:i:4:p:1151-1185
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    Cited by:

    1. Hornig, Stephan O. & Rottmann, Horst & Wapler, Rüdiger, 2011. "Sorting on the labour market: A literature overview and theoretical framework," Weidener Diskussionspapiere 27, University of Applied Sciences Amberg-Weiden (OTH).
    2. Gea M. Lee & Seung Han Yoo, 2013. "Unobserved Investment, Signaling, and Welfare," Discussion Paper Series 1301, Institute of Economic Research, Korea University, revised 2017.
    3. Jang-Ting Guo & Alan Krause, 2015. "Changing Social Preferences and Optimal Redistributive Taxation," Working Papers 201512, University of California at Riverside, Department of Economics.
    4. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic nonlinear income taxation with quasi-hyperbolic discounting and no commitment," Journal of Economic Behavior & Organization, Elsevier, pages 101-119.
    5. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.
    6. Sergey V. Popov & Dan Bernhardt, 2012. "Fraternities and Labor-Market Outcomes," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 116-141, February.
    7. Bergh, Andreas & Fink, Günther, 2009. "Higher education, elite institutions and inequality," European Economic Review, Elsevier, vol. 53(3), pages 376-384, April.
    8. Hendel, Igal & Shapiro, Joel & Willen, Paul, 2005. "Educational opportunity and income inequality," Journal of Public Economics, Elsevier, pages 841-870.
    9. Hornig, Stephan O. & Rottmann, Horst & Wapler, Rüdiger, 2009. "Information asymmetry, education signals and the case of Ethnic and Native Germans," IAB Discussion Paper 200914, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    10. Liu, Liqun & Neilson, William S., 2011. "High scores but low skills," Economics of Education Review, Elsevier, vol. 30(3), pages 507-516, June.
    11. Hidalgo Cabrillana, Ana, 2009. "Endogenous capital market imperfections, human capital, and intergenerational mobility," Journal of Development Economics, Elsevier, vol. 90(2), pages 285-298, November.
    12. Valerie Bostwick, 2016. "Signaling In Higher Education: The Effect Of Access To Elite Colleges On Choice Of Major," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1383-1401, July.
    13. Peter Arcidiacono & Patrick Bayer & Aurel Hizmo, 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 76-104, October.
    14. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic income taxation without commitment: Comparing alternative tax systems," Economic Modelling, Elsevier, vol. 47(C), pages 319-326.
    15. Jared Ashworth & V. Joseph Hotz & Arnaud Maurel & Tyler Ransom, 2017. "Changes across Cohorts in Wage Returns to Schooling and Early Work Experiences," NBER Working Papers 24160, National Bureau of Economic Research, Inc.
    16. Dean Corbae' & Tzu-Ying Chen, 2010. "Can Credit Market Signalling Improve Labor Market Outcomes?," 2010 Meeting Papers 685, Society for Economic Dynamics.
    17. Alberto Bisin & Andrea Moro & Giorgio Topa, 2011. "The empirical content of models with multiple equilibria in economies with social interactions," Staff Reports 504, Federal Reserve Bank of New York.
    18. Tomasz Gajderowicz & Gabriela Grotkowska & Jerzy Mycielski & Leszek Wincenciak, 2014. "Social and economic determinants of higher education choices in Poland," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 38.
    19. Wang, Le, 2012. "Economic transition and college premium in urban China," China Economic Review, Elsevier, vol. 23(2), pages 238-252.
    20. Dong, Baomin & Fu, Shihe & Gong, Jiong & Fan, Hanwen, 2014. "The Lame Drain," MPRA Paper 53825, University Library of Munich, Germany.
    21. Francesc Dilme & Fei Li:, 2012. "Dynamic Education Signaling with Dropout, Second Version," PIER Working Paper Archive 13-048, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Sep 2013.
    22. Changhui Kang & Sam-Ho Lee, 2015. "Being Knowledgeable or Sociable? Different Patterns of Human Capital Development and Evaluation in Cognitive and Non-cognitive Skills," Korean Economic Review, Korean Economic Association, vol. 31, pages 57-87.
    23. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.
    24. Chen, M. Keith & Chevalier, Judith A., 2008. "The taste for leisure, career choice, and the returns to education," Economics Letters, Elsevier, vol. 99(2), pages 353-356, May.
    25. Nicola Persico, 2002. "Racial Profiling, Fairness, and Effectiveness of Policing," American Economic Review, American Economic Association, vol. 92(5), pages 1472-1497, December.

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