May 8th, 2022

Aryal, Bhuller, Lange (May 2022) Signaling and Employer Learning with Instruments. American Economic Review.
(Here is a link to an older working paper version)

This paper considers the use of instruments to identify and estimate private and social returns to education within a model of employer learning. What an instrument identifies depends on whether it is hidden from, or transparent (i.e., observed) to, the employers. A hidden instrument identifies private returns to education, and a transparent instrument identifies social returns to education. We use variation in compulsory schooling laws across noncentral and central municipalities in Norway to, respectively, construct hidden and transparent instruments. We estimate a private return of 7.9 percent, of which 70 percent is due to increased productivity and the remaining 30 percent is due to signaling.

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