Beyond Signaling and Human Capital: Education and the Revelation of Ability
34 Pages Posted: 7 May 2010 Last revised: 18 May 2010
Date Written: January 1, 2009
We provide evidence that graduating from college plays a direct role in revealing ability to the labor market. Using the NLSY79, our results suggest that ability is observed nearly perfectly for college graduates. In contrast, returns to AFQT for high school graduates are initially very close to zero and rise steeply with experience. As a result, from the very beginning of their careers, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and the returns to ability.
JEL Classification: D83, J31, I20, J7
Suggested Citation: Suggested Citation