American Economic Review Vol. 112 No. 5 2022

Signaling and Employer Learning with Instruments

Gaurab Aryal¹; Manudeep Bhuller²; Fabian Lange³

¹ Department of Economics, University of Virginia (email: ) · ² Department of Economics, University of Oslo and Statistics Norway (email: ) · ³ Department of Economics, McGill University and NBER (email: )

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.

DOI

10.1257/aer.20200146

Volume

112

Issue

5

Pages

1669-1702

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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