Imperfect Signals

Georg Graetz

No 16104, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A pre-condition for employer learning is that signals at labor market entry do not fully reveal graduates' productivity. I model various distinct sources of signal imperfection—such as noise and multi-dimensional types—and characterize their implications for the private return to skill acquisition. Structural estimates using NLSY data suggest an important role for noise, pushing the private return below the social return. This induces substantial under-investment and causes output losses of up to 22 percent. Value-added-based evidence from Swedish high school graduates also points to noise and under-investment. Highlighting the distinction between schooling duration and skills acquired, I conclude that individuals likely spend too much time in school, but learn too little.

Keywords: human capital; signaling; employer learning; returns to schooling (search for similar items in EconPapers)
JEL-codes: D82 I26 J24 J31 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2023-05
New Economics Papers: this item is included in nep-lma
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Related works:
Working Paper: Imperfect signals (2023)
Working Paper: Imperfect Signals (2023)
Working Paper: Imperfect signals (2023)
Working Paper: Imperfect signals (2023)
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