EconPapers    
Economics at your fingertips  
 

Signaling and Employer Learning with Instruments

Gaurab Aryal (), Manudeep Bhuller () and Fabian Lange ()

No 25885, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The social and the private returns to education differ when education can increase productivity, and also be used to signal productivity. We show how instrumental variables can be used to separately identify and estimate the social and private returns to education within the employer learning framework of Farber and Gibbons [1996] and Altonji and Pierret [2001]. What an instrumental variable identifies depends crucially on whether the instrument is hidden from, or observed by, the employers. If the instrument is hidden then it identifies the private returns to education, but if the instrument is observed by employers then it identifies the social returns to education. Interestingly, however, among experienced workers the instrument identifies the social returns to education, regardless of whether or not it is hidden. We operationalize this approach using local variation in compulsory schooling laws across multiple cohorts in Norway. Our preferred estimates indicate that the social return to an additional year of education is 5%, and the private internal rate of return, aggregating the returns over the life-cycle, is 7.2%. Thus, 70% of the private returns to education can be attributed to education raising productivity and 30% to education signaling workers' ability.

JEL-codes: J01 J24 J3 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-lab
Note: ED LS
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w25885.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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:nbr:nberwo:25885

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25885
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-02-08
Handle: RePEc:nbr:nberwo:25885