Journal of Economic Perspectives: Vol. 9 No. 4 (Fall 1995)


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Human Capital vs. Signalling Explanations of Wages

Article Citation

Weiss, Andrew. 1995. "Human Capital vs. Signalling Explanations of Wages." Journal of Economic Perspectives, 9(4): 133-154.

DOI: 10.1257/jep.9.4.133


The key difference between signalling and human capital models is that signalling models allow firms to draw inferences about unobserved characteristics of workers. Those inferences can be based on the schooling or work experience of workers, or on direct measures of some aspects of job performance. Many recent empirical findings can be better explained by signalling models than by human capital theory. Given the explanatory power of signalling models, standard estimates of the social return to secondary schooling are in large part capturing differences in affective traits, such as perseverance, which were acquired either in primary school or at home.

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Weiss, Andrew (Boston U)

JEL Classifications

J31: Wage Level and Structure; Wage Differentials


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