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A Spillover-Based Theory of Credentialism

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  • Chris Bidner

    (School of Economics, University of New South Wales)

Abstract

I propose a model in which credentials, such as diplomas, are intrinsically valuable; a situation described as credentialism. The model overcomes an important criticism of signalling models by mechanically tying a worker’s wages to their productivity. A worker’s productivity is influenced by the skills of their coworkers, where such skills arise from an ability-augmenting investment that is made prior to matching with coworkers. A worker’s credentials allow them to demonstrate their investment to the labor market, thereby allowing workers to match with high-skill coworkers in equilibrium. Despite the positive externality associated with a worker’s investment, I show how over-investment is pervasive in equilibrium.

Suggested Citation

  • Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers 2010-10, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2010-10
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-10.pdf
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    Cited by:

    1. Masashi Tanaka, 2020. "Human capital investment, credentialing, and wage differentials," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 992-1016, August.
    2. Bilancini, Ennio & Boncinelli, Leonardo, 2014. "Instrumental cardinal concerns for social status in two-sided matching with non-transferable utility," European Economic Review, Elsevier, vol. 67(C), pages 174-189.
    3. Masashi Tanaka, 2013. "Human Capital Investment, Credentialing, and Wage Differentials," Discussion Papers in Economics and Business 13-31-Rev., Osaka University, Graduate School of Economics, revised Aug 2017.
    4. Richard Chisik, 2015. "Job market signalling, stereotype threat and counter-stereotypical behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 48(1), pages 155-188, February.
    5. Bidner, Chris, 2010. "Pre-match investment with frictions," Games and Economic Behavior, Elsevier, vol. 68(1), pages 23-34, January.
    6. Nick Huntington-Klein, 2021. "Human capital versus signaling is empirically unresolvable," Empirical Economics, Springer, vol. 60(5), pages 2499-2531, May.
    7. Chris Bidner & Guillaume Roger & Jessica Moses, 2016. "Investing in Skill and Searching for Coworkers: Endogenous Participation in a Matching Market," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 166-202, February.
    8. Păcurariu Gabriela, 2019. "The Integration of Higher Education Graduates on the Labor Market," European Review of Applied Sociology, Sciendo, vol. 12(19), pages 23-32, December.
    9. Thomas Gall & Patrick Legros & Andrew Newman, 2015. "College Diversity and Investment Incentives," Working Papers 2015-001, Human Capital and Economic Opportunity Working Group.
    10. Gall, Thomas & Legros, Patrick & Newman, Andrew, 2012. "Mismatch, rematch, and investment," Discussion Paper Series In Economics And Econometrics 189, Economics Division, School of Social Sciences, University of Southampton.

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    More about this item

    Keywords

    Credentialism; Matching; Spillovers; Signaling;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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