Beyond Signaling and Human Capital: Education and the Revelation of Ability

34 Pages Posted: 7 May 2010 Last revised: 18 May 2010

See all articles by Patrick J. Bayer

Patrick J. Bayer

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Peter Arcidiacono

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Aurel Hizmo

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2009

Abstract

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

Bayer, Patrick J. and Arcidiacono, Peter and Hizmo, Aurel, Beyond Signaling and Human Capital: Education and the Revelation of Ability (January 1, 2009). Economic Research Initiatives at Duke (ERID) Working Paper 32, Available at SSRN: https://ssrn.com/abstract=1602024 or http://dx.doi.org/10.2139/ssrn.1602024

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Peter Arcidiacono

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aurel Hizmo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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