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A test of the signalling hypothesis

Author

Listed:
  • Monojit Chatterji
  • Paul T. Seaman
  • Larry D. Singell Jr.

Abstract

Education may enhance earnings either because of human capital increases or by signalling unobservable worker attributes. Previous tests of these alternatives relied on ad hoc distinctions between them. Our theoretical model provides a direct signal measure as the difference between required and necessary qualifications, forming the basis for an ordered-probit model of discrete differences between required and necessary qualifications that depend on firm, job, and worker attributes. Estimates support the model's predictions, providing a continuous, predicted signal measure for second-stage earnings equations. These results provide the first formal evidence of a significant, positive, gender-specific return to a signal and indicate a downward bias in the return to education from excluding the signal measure. Copyright 2003, Oxford University Press.

Suggested Citation

  • Monojit Chatterji & Paul T. Seaman & Larry D. Singell Jr., 2003. "A test of the signalling hypothesis," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 191-215, April.
    • Handle: RePEc:oup:oxecpp:v:55:y:2003:i:2:p:191-215
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    Cited by:

    1. Sadiq, Misbah & Yousaf, Sheikh Usman & Anser, Muhammad Khalid & Rashid Khan, Haroon ur & Sriyanto, Sriyanto & Zaman, Khalid & Van Tu, Duong & Anis, Siti Nisrin Mohd, 2023. "The role of debt financing in the relationship between capital structure, firm’s value, and macroeconomic factors: To throw caution to the wind," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 212-223.
    2. Ingrid Linsley, 2005. "Overeducation in the Australian Labour Market : Its Incidence and Effects," Department of Economics - Working Papers Series 939, The University of Melbourne.
    3. Hao, Zedong & Wang, Yun, 2022. "Education signaling, effort investments, and the market's expectations: Theory and experiment on China's higher education expansion," China Economic Review, Elsevier, vol. 75(C).
    4. Perri, Timothy J., 2002. "Signaling versus contingent contracts with costly turnover," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 365-374, August.
    5. Monojit Chatterji, 2008. "Education and Economic Development in India," Dundee Discussion Papers in Economics 210, Economic Studies, University of Dundee.
    6. Ssekabira Ntege & Steven F. Koch, 2008. "Returns to Schooling: Skills Accumulation or Information Revelation?," Working Papers 087, Economic Research Southern Africa.
    7. Skalli, Ali, 2007. "Are successive investments in education equally worthwhile? Endogenous schooling decisions and non-linearities in the earnings-schooling relationship," Economics of Education Review, Elsevier, vol. 26(2), pages 215-231, April.
    8. NAKAMURO Makiko & INUI Tomohiko, 2013. "The Returns to College Quality in Japan: Does Your College Choice Affect Your Earnings?," ESRI Discussion paper series 306, Economic and Social Research Institute (ESRI).
    9. Chatterji, Monojit, 2008. "Education and Economic Development in India," SIRE Discussion Papers 2008-12, Scottish Institute for Research in Economics (SIRE).
    10. Andrews, Martyn J. & Bradley, Steve & Upward, Richard, 2001. "Estimating the probability of a match using microeconomic data for the youth labour market," Labour Economics, Elsevier, vol. 8(3), pages 335-357, June.
    11. Garcia-Mainar, Inmaculada & Montuenga, Victor M., 2019. "The signalling role of over-education and qualifications mismatch," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 99-119.

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