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Education, signaling and the allocation of entrepreneurial skills

Leandro Arozamena () and Hernán Ruffo ()

Research Department working papers from CAF Development Bank Of Latinamerica

Abstract: We assess the allocative importance of education when workers can choose to self-employ. To do so, we build a model combining educational choices with the labor market and selfemployment. Education can increase workers' human capital and may signal their ability as well. Both roles can be more important for working in a firm than for self-employment. We show that when education performs worse its signaling role, firms cannot distinguish high and low productivity workers, and there is a higher proportion of workers that allocate in less productive activities as self-employed. This option further reduces incentives to educate, given that education is less valuable for a worker if self-employed. Lowering the cost of education increases the number of educated workers, but does not solve the signaling problem, and could generate stronger misallocation.

Keywords: Educación; Economía; Emprendimiento; Investigación socioeconómica; Productividad; Sector privado; Sector productivo; Trabajo y protección social; Habilidades y destrezas (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-edu, nep-ent and nep-hrm
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