Acemoglu on Human Capital and Signaling
By Bryan Caplan
Highlight on human capital:
- But there is some evidence that could be useful to distinguish between age effects vs. experience effects (automatic or due to investment).
- Josh Angrist’s paper on Vietnam veterans: workers who served in the Vietnam War lost the experience premium associated with the years they served in the war.
- Presuming that serving in the war has no productivity effects, this evidence suggests that much of the age-earnings pro files are due to experience not simply due to age.
- But still consistent both with direct experience effects on worker productivity, and also a Ben Porath type explanation where workers are purposefully investing in their human capital while working, and experience is proxying for these investments.
Note that the Angrist result undercuts the “character formation” story about how seemingly irrelevant education boosts worker productivity. Convenient for me, but I confess I’m skeptical.
Highlight on signaling:
- Passing grades in the Graduate Equivalent Degree (GED) differ by state.
- So an individual with the same grade in the GED exam will get a GED in one state, but not in another.
- If the score in the exam is an unbiased measure of human capital, and there is no signaling, these two individuals should get the same wages.
- If the GED is a signal, and employers do not know where the individual took the GED exam, these two individuals should get different wages.
- Using this methodology, the authors estimate that there is a 10-19 percent return to a GED signal.
- An interesting result that Tyler, Murnane and Willett find is that there are no GED returns to minorities.
- This is also consistent with the signaling view, since it turns out that many minorities prepare for and take the GED exam in prison. Therefore, GED would be not only a positive signal, but also likely a signal that the individual was at some point incarcerated. Hence not a good signal at all.
This is a nice illustration of my point that unconventional signals suggest off-setting weaknesses.