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Job Matching and the Returns to Educational Signals

  • Habermalz, Steffen

    ()

    (Northwestern University)

This paper develops a multi-period model, in which workers are matched with jobs according to imperfect educational signals and in which their subsequent productivities depend on both their inherent ability and on the quality of the job match. It outlines a sequential process, in which underpaid employees reveal their true productivities and overpaid employees are detected by the firm until every match is perfect. The model produces a time path of the returns to educational signals that is concave, a feature that earlier studies used to dismiss educational signaling. Using a synthetic panel data set from the Current Population Survey the theoretical result is then substantiated empirically. The paper contributes to the literature by establishing the possibility of increasing returns to education over part of a workers life within the signaling framework theoretically and empirically.

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File URL: http://ftp.iza.org/dp726.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 726.

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Length: 30 pages
Date of creation: Feb 2003
Date of revision:
Publication status: published as 'More Detail on the Pattern of Returns to Educational Signals' in: Southern Economic Journal, 2006, 73 (1), 125–135
Handle: RePEc:iza:izadps:dp726
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  1. Spence, A. Michael, 2001. "Signaling in Retrospect and the Informational Structure of Markets," Nobel Prize in Economics documents 2001-6, Nobel Prize Committee.
  2. Stiglitz, Joseph E., 2001. "Information and the Change in the Paradigm in Economics," Nobel Prize in Economics documents 2001-8, Nobel Prize Committee.
  3. Joseph G. Altonji & Charles R. Pierret, . "Employer Learning and Statistical Discrimination," IPR working papers 97-18, Institute for Policy Resarch at Northwestern University.
  4. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  5. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  6. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  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 985-98, Sept./Oct.
  8. Ann P. Bartel & George J. Borjas, 1981. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Chapters, in: Studies in Labor Markets, pages 65-90 National Bureau of Economic Research, Inc.
  9. Kelly Bedard, . "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Canadian International Labour Network Working Papers 19, McMaster University.
  10. 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.
  11. Belman, Dale & Heywood, John S, 1991. "Sheepskin Effects in the Returns to Education: An Examination on Women and Minorities," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 720-24, November.
  12. Heywood, John S., 1994. "How widespread are sheepskin returns to education in the U.S.?," Economics of Education Review, Elsevier, vol. 13(3), pages 227-234, September.
  13. Henry S. Farber & Robert Gibbons, 1994. "Learning and Wage Dynamics," Working Papers 707, Princeton University, Department of Economics, Industrial Relations Section..
  14. 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 733-40, November.
  15. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  16. Stephen V. Cameron & James J. Heckman, 1991. "The Nonequivalence of High School Equivalents," NBER Working Papers 3804, National Bureau of Economic Research, Inc.
  17. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S227-52, October.
  18. Riley, John G, 2002. " Weak and Strong Signals," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 213-36, June.
  19. Belman, Dale & Heywood, John S, 1997. "Sheepskin Effects by Cohort: Implications of Job Matching in a Signaling Model," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 623-37, October.
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