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American Economic Journal: Applied Economics: Vol. 2 No. 4 (October 2010)

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Beyond Signaling and Human Capital: Education and the Revelation of Ability

Article Citation

Arcidiacono, Peter, Patrick Bayer, and Aurel Hizmo. 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability." American Economic Journal: Applied Economics, 2(4): 76-104.

DOI: 10.1257/app.2.4.76

Abstract

We provide evidence that college graduation plays a direct role in revealing ability to the labor market. Using the NLSY79, our results suggest that ability is observed nearly perfectly for college graduates, but is revealed to the labor market more gradually for high school graduates. Consequently, from the beginning of their careers, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and returns to ability. (JEL D82, I21, I23, J24, J31)

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Authors

Arcidiacono, Peter (Duke U)
Bayer, Patrick (Duke U)
Hizmo, Aurel (Duke U)

JEL Classifications

D82: Asymmetric and Private Information
I21: Analysis of Education
I23: Higher Education and Research Institutions
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials

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