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Fraternities and labor market outcomes

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  • Popov, Sergey V.
  • Bernhardt, Dan

Abstract

We model how the choices by students to “rush” a fraternity, and the choices by a fraternity of whom to admit, interact with the signals that firms receive about student productivities to determine labor market outcomes. Both the fraternity and students care about future wages and fraternity socializing values. We first show that if the signals firms receive about students are either perfectly informative or perfectly noisy, then fraternity membership has no impact on labor market outcomes. For intermediate signaling technologies, however, three types of equilibria can exist: pessimistic beliefs by firms about the abilities of fraternity members can support an equilibrium in which no one pledges; optimistic beliefs can lead to higher wages for fraternity members than non-members, so that in equilibrium everyone whom the fraternity would like to admit actually pledges; and an equilibrium in which most fraternity members have intermediate abilities—less able students apply, hoping to be mixed in with better students, but are rejected unless they have high fraternity socializing values, while most very able students do not apply to avoid being tainted in labor market outcomes due to being mixed in with less able fraternity members. We provide sufficient conditions for this latter “hump-shaped” equilibrium to exist, take the model to the data and show that this equilibrium can reconcile the ability distribution of fraternity members at the University of Illinois. Finally, we estimate the welfare impact of the fraternity on different students.

Suggested Citation

  • Popov, Sergey V. & Bernhardt, Dan, 2009. "Fraternities and labor market outcomes," MPRA Paper 18853, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18853
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    References listed on IDEAS

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    1. Moro, Andrea & Norman, Peter, 2004. "A general equilibrium model of statistical discrimination," Journal of Economic Theory, Elsevier, vol. 114(1), pages 1-30, January.
    2. Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
    3. Larry Samuelson & George J. Mailath & Avner Shaked, 2000. "Endogenous Inequality in Integrated Labor Markets with Two-Sided Search," American Economic Review, American Economic Association, vol. 90(1), pages 46-72, March.
    4. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    5. Peter Norman, 2003. "Statistical Discrimination and Efficiency," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 615-627.
    6. Hanming Fang, 2001. "Social Culture and Economic Performance," American Economic Review, American Economic Association, vol. 91(4), pages 924-937, September.
    7. 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.
    8. Hanming Fang & Peter Norman, 2006. "Government-Mandated Discriminatory Policies: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 361-389, May.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. College fraternities and the labor market
      by Economic Logician in Economic Logic on 2010-01-06 09:22:00

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    Cited by:

    1. Aaron Hedlund, 2014. "Estate Taxation and Human Capital with Information Externalities," Working Papers 1415, Department of Economics, University of Missouri.
    2. Facundo Albornoz & Antonio Cabrales & Esther Hauk, 2017. "Occupational Choice with Endogenous Spillovers," Working Papers 972, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    Signaling; fraternities; statistical discrimination;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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