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Title: Beyond Signaling and Human Capital: Education and the Revelation of Ability
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Arcidiacono, Peter Bayer, Patrick Hizmo, Aurel |
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Beyond Signaling and Human Capital: Education and the Revelation of Ability American Economic Journal: Applied Economics 2,4 (October 2010): 76-104. Also: http://pubs.aeaweb.org/doi/pdfplus/10.1257/app.2.4.76 Cohort(s): NLSY79 Publisher: American Economic Association Keyword(s): Armed Forces Qualifications Test (AFQT); College Enrollment; Discrimination, Employer; High School Completion/Graduates; Modeling, Fixed Effects; Racial Differences; Test Scores/Test theory/IRT; Wages Permission to reprint the abstract has not been received from the publisher. In traditional signaling models, education provides a way for individuals to sort themselves by ability. Employers in turn use education to statistically discriminate, paying wages that reflect the average productivity of workers with the same given level of education. In this paper, we provide evidence that education (specifically, attending college) plays a much more direct role in revealing ability to the labor market. Using the NLSY79, our results suggest that ability is observed nearly perfectly for college graduates. In contrast, returns to AFQT for high school graduates are initially very close to zero and rise steeply with experience. As a result, from very beginning of the career, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially completely unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and the returns to ability. In particular, we find no racial differences in wages or returns to ability in the college labor market, but a 6-10 percent wage penalty for blacks (conditional on ability) in the high school market. These results are consistent with the notion that employers use race to statistically discriminate in the high school market but have no need to do so in the college market. |
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Bibliography Citation
Arcidiacono, Peter, Patrick Bayer and Aurel Hizmo. "Beyond Signaling and Human Capital: Education and the Revelation of Ability." American Economic Journal: Applied Economics 2,4 (October 2010): 76-104.
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