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Employer Learning and Schooling-Related Statistical Discrimination in Britain

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  • Fernando Galindo-Rueda

Abstract

This paper develops and tests a new model of asymmetric information in the labour market involving employer learning. In the model, I provide theoretical conditions for the identification -- based on the experience and tenure profiles of estimated returns to ability and education -- of employer learning about unobserved worker's productivity and statistical discrimination based on years of schooling. Using data from two British birth cohorts, estimates based on this model support the hypothesis that British employers have limited information about their workers, make inferences based on their education levels, and progressively learn about their true ability. Moreover, this learning process -- particularly among blue-collar workers-- favours incumbent employers relative to potential competitors (asymmetric learning). This informational advantage implies an additional distortion in the functioning of the labour market and policy evaluation rarely takes into account the informational impact of interventions and its implications for individual behaviour.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fernando Galindo-Rueda, 2003. "Employer Learning and Schooling-Related Statistical Discrimination in Britain," CEE Discussion Papers 0031, Centre for the Economics of Education, LSE.
  • Handle: RePEc:cep:ceedps:0031
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    References listed on IDEAS

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    1. Joseph G. Altonji & Charles R. Pierret, "undated". "Employer Learning and the Signaling Value of Education," IPR working papers 96-11, Institute for Policy Resarch at Northwestern University.
    2. Bauer, Thomas K. & Haisken-DeNew, John P., 2001. "Employer learning and the returns to schooling," Labour Economics, Elsevier, vol. 8(2), pages 161-180, May.
    3. John Cawley & Karen Conneely & James Heckman & Edward Vytlacil, 1996. "Cognitive Ability, Wages, and Meritocracy," NBER Working Papers 5645, National Bureau of Economic Research, Inc.
    4. Andrew Jenkins, 2001. "Companies use of psychometric testing and the changing demand for skills: A review of the literature," CEE Discussion Papers 0012, Centre for the Economics of Education, LSE.
    5. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 227-252, October.
    6. Henry S. Farber & Robert Gibbons, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1007-1047.
    7. 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.
    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. Psacharopoulos, George, 1979. "On the weak versus the strong version of the screening hypothesis," Economics Letters, Elsevier, vol. 4(2), pages 181-185.
    10. Cawley, John & Heckman, James & Vytlacil, Edward, 2001. "Three observations on wages and measured cognitive ability," Labour Economics, Elsevier, vol. 8(4), pages 419-442, September.
    11. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
    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. Barbara Mueller & Stefan C. Wolter, 2011. "The Consequences of Being Different - Statistical Discrimination and the School-to-Work Transition," CESifo Working Paper Series 3345, CESifo Group Munich.
    2. Nakabayashi, Masaki, 2011. "Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s," MPRA Paper 30597, University Library of Munich, Germany.
    3. Barbara Mueller & Stefan Wolter, 2014. "The role of hard-to-obtain information on ability for the school-to-work transition," Empirical Economics, Springer, vol. 46(4), pages 1447-1471, June.
    4. NAKABAYASHI, Masaki, 2011. "Acquired Skills and Learned Abilities: Wage Dynamics of Blue-collar Workers in Internal Labor Markets," ISS Discussion Paper Series (series F) f153, Institute of Social Science, The University of Tokyo, revised Apr 2012.
    5. 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.
    6. Núria Rodríquez-Planas, 2011. "Displacement, Signaling, and Recall Expectations," Working Papers 550, Barcelona Graduate School of Economics.
    7. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," CDMA Working Paper Series 201307, Centre for Dynamic Macroeconomic Analysis, revised 14 Oct 2013.
    8. Koerselman, Kristian, 2011. "Bias from the use of mean-based methods on test scores," Working Paper Series 1/2011, Stockholm University, Swedish Institute for Social Research.
    9. Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany.
    10. Fabian Lange, 2005. "The Returns to Schooling and Ability During the Early Career: Evidence on Employer Learning and Post-School Investment," 2005 Meeting Papers 253, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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