ERIC Number: ED297440
Record Type: RIE
Publication Date: 1988-Mar-10
Reference Count: N/A
Information Externalities and the Social Payoff to Academic Achievement. Working Paper No. 87-06. Revised.
Wage rates and earnings can mislead public and private decisionmakers about the social benefits of certain kinds of education and training investments. This confusion arises because (1) workers and employers prefer employment contracts that downplay productivity differences among workers doing the same job; and (2) important dimensions of educational and training accomplishment (skill, knowledge, and competencies) are often not signaled to potential employers and therefore have limited influence on job allocations. This situation results in significant productivity differentials among workers receiving the same pay for the same job. Some differentials are related to inefficiently signaled educational and training accomplishments (or academic achievement). This paper develops a simple signaling/implicit contract model of the labor market. True productivity depends on general intellectual achievement and educational credentials, but since the former is unobservable, pay is based on credentials and supervisory assessments of doubtful reliability. The labor market tends to overcompensate credentials and undercompensate academic achievement. Next, the paper refutes an assumed equality between simple wage and individual marginal revenue products. A hypothesis equating productivity with wage effects of general intellectual achievement is also refuted. Finally, the paper develops a method of estimating academic achievement's true impact on productivity and applies it to data on 31,399 workers' productivity. The analysis strongly supports signaling theory. The tendency to underreward academic achievement may help explain why American high school students devote less time and energy to learning than do their counterparts abroad. Included are 19 endnotes, 71 references, 3 tables, and a worker evaluation questionnaire. (Author/MLH)
Publication Type: Reports - Research
Education Level: N/A
Authoring Institution: State Univ. of New York, Ithaca. School of Industrial and Labor Relations at Cornell Univ.