If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to 'statistically discriminate' among workers. The pure credential value of education will depend on how quickly firms learn. To obtain information on employer learning, we work with a wage equation that contains both the interaction between experience and a hard-to-observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. The time path of the coefficient on the unobservable productivity variable provides information about the rate at which employers learn about worker productivity. Using data from the NLSY we obtain preliminary estimates of the rate at which employers learn about worker quality and use these, along with some strong auxiliary assumptions, to explore the empirical relevance of the educational screening hypothesis. We show that even if employers learn relatively slowly about the productivity of new workers, the portion of the return to education that could reflect signaling of ability is limited.
Human Capital is Becker's classic study of how investment in an individual's education and training is similar to business investments in equipment. Recipient of the 1992 Nobel Prize in Economic Science, Gary S. Becker is a pioneer of applying economic analysis to human behavior in such areas as discrimination, marriage, family relations, and education. Becker's research on human capital was considered by the Nobel committee to be his most noteworthy contribution to economics. This expanded edition includes four new chapters, covering recent ideas about human capital, fertility and economic growth, the division of labor, economic considerations within the family, and inequality in earnings.
We present a model where the interaction between the size of the elite school sector, industrial structure and labor market outcomes is characterized by the concept of Nash decentralized equilibrium. Depending on the underlying parameters, the economy described in the model can be characterized by multiple regime equilibria and historical accident decides which equilibrium the economy falls in. In one regime, the size of the elite school sector affects investment in academic skills, average productivity and wages. In another regime, elite schools do not matter for productivity and wages. Government policy that tries to shift the economy from the latter to the former regime cannot succeed unless there is a regime shift in the hiring policies of firms, from the reliance upon experienced workers to the emphasis on hiring school graduates from elite schools.
An optimizing model of expenditure allocations predicts that input use should be chosen so that the marginal product per dollar of each input is equalized. In decided contrast, the existing literature shows that the marginal product per dollar of inputs not directly valued by teachers are commonly 10 to 100 times higher than that of inputs valued by teachers. This implies that inputs which provide direct benefits to educators (like teacher wages) are over-used relative to inputs that contribute directly (but only) to educational output (like books or instructional materials). One class of positive models of expenditures consistent with this empirical finding invokes a very high ratio of teacher to parent (or student) influence in the determination of expenditures. This implies that educational reforms that shift the relative strengths of parents versus teachers in the allocation of expenditures can sometimes lead to enormous gains in the cost effectiveness of schools.
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I construct an agency model of local public goods producers in which households make Tiebout choices among jurisdictions in a world of imperfect information and costly residential mobility. I examine producers’ effort and rent under local property tax finance and centralized finance. I show that, if there are a sufficient number of jurisdictions, conventional local property tax finance can attain about as much productivity as a social planner with centralized finance can, even if the social planner is armed with more information than a real social planner could plausibly have. The key insight is that decentralized Tiebout choices make some information the social planner would need verifiable and other information unnecessary.
Governments use public education and public ownership of schools and the media to control the information that their citizens receive. More totalitarian governments as well as those with larger wealth transfers make greater investments in publicly controlled information. This finding is borne out from cross sectional time-series evidence across countries, and is confirmed when specifically examining the recent fall of communism. My results reject the standard public good's view linking education and democracy, and I find evidence that public educational expenditures vary in similar ways to government ownership of television stations.
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