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Education, Signaling, and Wage Inequality in a Dynamic Economy

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  • Yuki, Kazuhiro

Abstract

Many empirical works suggest that education has a positive effect on earnings not only because it raises human capital but also because it functions as a signal when employers have incomplete information on employees' skills. The signaling role could have important consequences on the dynamics of education, wages, and wage distribution when there exist intergenerational linkages in educational decisions. This paper examines the dynamic effects in an economy where education has the dual roles and some fraction of individuals is credit constrained from taking education. In particular, it investigates how the number of educated individuals, the importance of the signaling value of education, and the wage inequality between educated and uneducated workers change over time in such economy, and compares the dynamics with those when education does not function as a signal. It also examines whether the signaling role leads to higher aggregate consumption or not in the long run.

Suggested Citation

  • Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16982
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    File URL: https://mpra.ub.uni-muenchen.de/16982/1/MPRA_paper_16982.pdf
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    References listed on IDEAS

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    1. Galindo-Rueda, Fernando, 2003. "Employer Learning and Schooling-Related Statistical Discrimination in Britain," Royal Economic Society Annual Conference 2003 82, Royal Economic Society.
    2. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, pages 219-239.
    3. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
    4. Yuki, Kazuhiro, 2008. "Sectoral Shift, Wealth Distribution, And Development," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 527-559, September.
    5. Arnaud Chevalier & Colm Harmon & Ian Walker & Yu Zhu, 2004. "Does Education Raise Productivity, or Just Reflect it?," Economic Journal, Royal Economic Society, vol. 114(499), pages 499-517, November.
    6. Hendel, Igal & Shapiro, Joel & Willen, Paul, 2005. "Educational opportunity and income inequality," Journal of Public Economics, Elsevier, pages 841-870.
    7. Ulla Hämäläinen & Roope Uusitalo, 2008. "Signalling or Human Capital: Evidence from the Finnish Polytechnic School Reform," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 755-775, December.
    8. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    9. Yuki, Kazuhiro, 2007. "Urbanization, informal sector, and development," Journal of Development Economics, Elsevier, vol. 84(1), pages 76-103, September.
    10. 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.
    11. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-1240, December.
    12. Strobl, Eric, 2003. "Is Education Used as a Signaling Device for Productivity in Developing Countries? Evidence from Ghana," IZA Discussion Papers 683, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Yuki, Kazuhiro, 2012. "Stereotypes, segregation, and ethnic inequality," MPRA Paper 39704, University Library of Munich, Germany.

    More about this item

    Keywords

    Human capital; Education; Signaling; Statistical discrimination; Credit constraint;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • I20 - Health, Education, and Welfare - - Education - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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