Imperfect Signals

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 16104

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Returns to Education ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Wage Level and Structure; Wage Differentials
• Subject: human capital ; signaling ; employer learning ; returns to schooling

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Graetz, Georg
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/272731
• Last update: 10.03.2025, 11:42 AM CET