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Human Capital, Signaling, and Employer Learning. What Ingsights Do We Gain from Regression Discontinuity Designs

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  • Georg Graetz
Abstract
Several recent papers employ the regression discontinuity design (RDD) to estimate the causal effect of a diploma (or similar credentials) on wages. Using a simple model of asymmetric information, I show that RDD estimates the information value of a diploma. A positive information value arises if employers, unable to observe the test score that determines diploma receipt, infer that workers with a diploma have higher average productivity than those without. Crucially, a diploma can have information value regardless of whether workers’ productivity is solely determined by acquisition of knowledge and skills through studying (the pure human capital model) or whether studying has no effect on productivity (the pure signaling model). Thus, while RDD estimates of diploma effects are evidence for information frictions and statistical discrimination, they do not help to distinguish between human capital and signaling. However, with longitudinal data, RDD can be used to estimate the speed of employer learning, since RDD coefficients are direct estimates of (differences in) expectation errors.

Suggested Citation

  • Georg Graetz, 2017. "Human Capital, Signaling, and Employer Learning. What Ingsights Do We Gain from Regression Discontinuity Designs," CESifo Working Paper Series 6757, CESifo.
    • Handle: RePEc:ces:ceswps:_6757
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    References listed on IDEAS

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    2. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 313-350.
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    6. Feng, Andy & Graetz, Georg, 2017. "A question of degree: The effects of degree class on labor market outcomes," Economics of Education Review, Elsevier, vol. 61(C), pages 140-161.
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    More about this item

    Keywords

    human capital; signaling; employer learning; statistical discrimination; regression discontinuity design;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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