Signaling and Employer Learning with Instruments
Gaurab Aryal, Manudeep Bhuller, Fabian Lange
American Economic Review · 2022 · Volume 112 · Issue 5
Abstract
This paper considers the use of instruments to identify and estimate private and social returns to education within a model of employer learning. What an instrument identifies depends on whether it is hidden from, or transparent (i.e., observed) to, the employers. A hidden instrument identifies private returns to education, and a transparent instrument identifies social returns to education. We use variation in compulsory schooling laws across noncentral and central municipalities in Norway to, respectively, construct hidden and transparent instruments. We estimate a private return of 7.9 percent, of which 70 percent is due to increased productivity and the remaining 30 percent is due to signaling.
Keywords
Asymmetric and Private Information, Mechanism Design, State and Local Government: Health, Education, Welfare, Public Pensions, Returns to Education, Education: Government Policy, Human Capital, Skills, Occupational Choice, Labor Productivity, Wage Level and Structure, Wage Differentials
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