Education and Cartel Membership
By Arnold Kling
It is an embarrassing question for signaling models to ask: with what lag do employers get a good estimate of a worker’s marginal product? If you say “it takes 37 years” it is hard to account for all the recent changes in wage rates in response to technology, as discussed above.
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More schooling can give you more skills. It can give you a signal of your ability (including your ability to conform). It also can give you membership in a cartel, to be a public school teacher, for example. I worry that it could be that growth in the cartel-membership value of schooling could account for some of the apparent long-term returns to schooling.
By the way, some of the studies that use instrumental variables to show a long-term return to schooling based on “natural experiments” are not persuasive. It turns out that if you look at the instruments, they are weak or questionable.