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Employer Learning and Schooling-Related Statistical Discrimination in Britain

  • Galindo-Rueda, Fernando

    (London School of Economics)

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.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 82.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:82
Contact details of provider: Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
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  1. 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.
  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. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  4. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October.
  5. Joseph G. Altonji & Charles R. Pierret, 1996. "Employer Learning and the Signaling Value of Education," NBER Working Papers 5438, National Bureau of Economic Research, Inc.
  6. 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.
  7. Henry S. Farber & Robert Gibbons, 1994. "Learning and Wage Dynamics," Working Papers 707, Princeton University, Department of Economics, Industrial Relations Section..
  8. 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 985-98, Sept./Oct.
  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. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  11. 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.
  12. John Cawley & Karen Conneely & James Heckman & Edward Vytlacil, 1996. "Cognitive Ability, Wages, and Meritocracy," NBER Working Papers 5645, National Bureau of Economic Research, Inc.
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