American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Signaling and Employer Learning with Instruments
American Economic Review
vol. 112,
no. 5, May 2022
(pp. 1669–1702)
Abstract
This paper considers the use of instruments to identify and estimate private and social returns to education within a model of employer learning. What an instrument identifies depends on whether it is hidden from, or transparent (i.e., observed) to, the employers. A hidden instrument identifies private returns to education, and a transparent instrument identifies social returns to education. We use variation in compulsory schooling laws across noncentral and central municipalities in Norway to, respectively, construct hidden and transparent instruments. We estimate a private return of 7.9 percent, of which 70 percent is due to increased productivity and the remaining 30 percent is due to signaling.Citation
Aryal, Gaurab, Manudeep Bhuller, and Fabian Lange. 2022. "Signaling and Employer Learning with Instruments." American Economic Review, 112 (5): 1669–1702. DOI: 10.1257/aer.20200146Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I26 Returns to Education
- I28 Education: Government Policy
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials