Does Speed Signal Ability? The Impact of Grade Repetitions on Employment and Wages
Year: 2008
Type: article
Study design: Observational Study
Abstract: To estimate returns to education, we replace the years-of-education regressor with, (i), a variable called “education level, " measuring the position on a scale of diplomas and degrees, earned by the individual, and (ii), a variable called “delay", measuring the individual’s total time to degree completion. Using quarter-of-birth and distance to the nearest college at the age of junior-high-school entry as instruments, we …nd that a year of delay with respect to average completion times causes a signi…cant 3 % decrease of the wage, and a signi…cant 15 % decrease of the probability of employment in the …rst …ve years of career, while education level has positive e¤ects. Results are …rst established with standard linear methods (3SLS). A nonlinear econometric model based on conditional expected utility maximization generates four equations determining wages, probability of employment, education level, and delay. Estimation by Maximum Likelihood con…rms the results. The nonlinear model passes the likelihood-ratio test against a closely comparable “reduced form " in which education levels are endogenous dummy variables, determined by an Ordered Probit structure. Delay is interpreted as a signal in the sense of Spence. Estimation is based on a very rich sample of more than 12,000 young workers, in France.
Authors: Thomas Brodaty, Robert Gary‐Bobo, Ana Prieto
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1539287197