Employer Learning and Schooling-Related Statistical Discrimination in Britain

34 Pages Posted: 6 Jun 2003

See all articles by Fernando Galindo-Rueda

Fernando Galindo-Rueda

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Institute for the Study of Labor (IZA)

Date Written: May 2003

Abstract

This paper develops and tests a new model of asymmetric information in the labour market involving employer learning. In the model, I provide theoretical conditions for the identification - based on the experience and tenure profiles of estimated returns to ability and education - of employer learning about unobserved worker's productivity and statistical discrimination based on years of schooling. Using data from two British birth cohorts, estimates based on this model support the hypothesis that British employers have limited information about their workers, make inferences based on their education levels, and progressively learn about their true ability. Moreover, this learning process - particularly among blue-collar workers - favours incumbent employers relative to potential competitors (asymmetric learning). This informational advantage implies an additional distortion in the functioning of the labour market and policy evaluation rarely takes into account the informational impact of interventions and its implications for individual behaviour.

Keywords: Employer Learning, Statistical Discrimination, Asymmetric Information, Unobserved Ability

JEL Classification: C51, C52, D82, J39, J79

Suggested Citation

Galindo-Rueda, Fernando, Employer Learning and Schooling-Related Statistical Discrimination in Britain (May 2003). Available at SSRN: https://ssrn.com/abstract=412483

Fernando Galindo-Rueda (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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