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The choice of majors as a signaling device

Author

Listed:
  • Javier Nuñez

    () (Universidad de Chile)

  • Andres Otero

    () (Universidad de Chile)

Abstract

This work analyzes the ability signaling hypothesis using a rich set of data of a homogeneous population -Business and Economics graduates of University X- who share similar occupations in the labor market. After studying three years of a common core curriculum, students must choose between either a Business or an Economics major. The work investigates if the choice of major is employed by the labor market as a signal of ability and of expected productivity, and if this is reflected in differences in the earnings profiles of graduates of each field. Given the detailed nature of the data, we employ an unusually rich measure of ability, namely the grades obtained in the core curriculum. This work presents multiple evidence in favor of this hypothesis. The evidence is based on seven empirical results, properly derived from a simple theoretical signaling model. The empirical facts support the signaling hypothesis under the assumption that an individual's ability is gradually revealed to the labor market as experience increases.

Suggested Citation

  • Javier Nuñez & Andres Otero, 2005. "The choice of majors as a signaling device," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 20(1), pages 23-43, June.
  • Handle: RePEc:ila:anaeco:v:20:y:2005:i:1:p:23-43
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    References listed on IDEAS

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    1. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    2. MacKinnon, James G. & White, Halbert & Davidson, Russell, 1983. "Tests for model specification in the presence of alternative hypotheses : Some further results," Journal of Econometrics, Elsevier, vol. 21(1), pages 53-70, January.
    3. Cohn, Elchanan & Kiker, B. F. & De Oliveira, M. Mendes, 1987. "Further evidence on the screening hypothesis," Economics Letters, Elsevier, vol. 25(3), pages 289-294.
    4. Jaeger, David A & Page, Marianne E, 1996. "Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 733-740, November.
    5. 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 985-998, Sept./Oct.
    6. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
    7. Arcidiacono, Peter, 2004. "Ability sorting and the returns to college major," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 343-375.
    8. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 313-350.
    9. Tucker, Irvin III, 1986. "Evidence on the weak and the strong versions of the screening hypothesis in the United States," Economics Letters, Elsevier, vol. 21(4), pages 391-394.
    10. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
    11. 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 317-321, May.
    12. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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    Citations

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    Cited by:

    1. Lourdes Espinoza & Carlos Gustavo Machicado & Katia Makhlouf, 2007. "La Enseñanza de Economía en Bolivia y Chile," Development Research Working Paper Series 10/2007, Institute for Advanced Development Studies.
    2. Carlos Gustavo Machado & Lourdes Espinoza & Katia Makhlouf, 2009. "La enseñanza de economía en Bolivia y Chile," Research Department Publications 4632, Inter-American Development Bank, Research Department.

    More about this item

    Keywords

    Signaling; Choice of Majors; Human Capital;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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