Does Education Raise Productivity or Just Reflect it?

34 Pages Posted: 12 Sep 2003

See all articles by Arnaud Chevalier

Arnaud Chevalier

University College Dublin (UCD) - Institute for the Study of Social Change; IZA Institute of Labor Economics

Colm P. Harmon

The University of Sydney - School of Economics; IZA Institute of Labor Economics

Ian Walker

University of Warwick - Department of Economics; Institute for Fiscal Studies (IFS); IZA Institute of Labor Economics

Yu Zhu

University of Kent, Canterbury, Kent Business School, Students

Multiple version iconThere are 2 versions of this paper

Date Written: July 2003

Abstract

It is clear that education has an important effect on wages paid in the labour market. It is not clear, however, whether this is due to the role that education plays in raising the productivity of workers (the human capital explanation) or whether education simply reflects the ability of the worker (through a signalling role). In this Paper we describe and implement, using a variety of UK datasets, a number of tests from the existing literature for discriminating between the two explanations. We find little support for signalling ideas in these tests. We have, however, severe reservations about these results because of our doubts about the power of these tests and the appropriateness of the data. We propose an alternative test, based on the response of some individuals to a change in education incentives offered to other individuals caused by the changes in the minimum school leaving age in the 1970s. Using this idea, we find that data in the UK appears to strongly support the human capital explanation.

Keywords: Human capital, signalling, screening

JEL Classification: I20, J30

Suggested Citation

Chevalier, Arnaud and Harmon, Colm P. and Walker, Ian and Zhu, Yu, Does Education Raise Productivity or Just Reflect it? (July 2003). CEPR Discussion Paper No. 3993. Available at SSRN: https://ssrn.com/abstract=444740

Arnaud Chevalier

University College Dublin (UCD) - Institute for the Study of Social Change ( email )

Belfield
Dublin 4
Ireland
+353 1 716 4616 (Phone)
+353 1 716 1108 (Fax)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Colm P. Harmon (Contact Author)

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

IZA Institute of Labor Economics

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

Ian Walker

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 1203 523 054 (Phone)
+44 1203 523 032 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

IZA Institute of Labor Economics

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

Yu Zhu

University of Kent, Canterbury, Kent Business School, Students ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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