Quantifying the Signaling Role of Education

Baris Kaymak

No 25-02, Working Papers from Federal Reserve Bank of Cleveland

Abstract: This paper quantifies the signaling role of education and measures the associated efficiency losses from asymmetric information. To that end, I model educational attainment and occupational choices in an asymmetric information environment with employer learning and socially productive education. The model highlights how occupational sorting and the pace of employer learning jointly determine the strength of the signaling motive in equilibrium. I estimate the signaling role of education versus human capital by relating differences in employer learning across occupations, which generates variation in signaling incentives, to the distribution of ability and educational attainment by occupation. The estimates suggest that the role of job market signaling relative to the human capital model is 23 percent. On the margin, a year of additional schooling raises productivity by 6.4 percent and the return to signaling is 2.4 percent. In a counterfactual analysis, eliminating asymmetric information reallocates labor from education to workforce participation and improves occupational sorting. Aggregate efficiency gains are equivalent to 7.6 percent of lifetime earnings.

Keywords: signaling; education; asymmetric information; productivity (search for similar items in EconPapers)
JEL-codes: D82 J24 (search for similar items in EconPapers)
Pages: 29
Date: 2025-01-09
New Economics Papers: this item is included in nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-202502 Persistent link (text/html)
https://www.clevelandfed.org/-/media/project/cleve ... pers/2025/wp2502.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:99410

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-202502

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().