Models of education

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1、1TheHumanCapitalvs.SignalingTheoryofEducationAnyintroductiontothesubjectofthereturnstoeducationbeginswithadescriptionofthetwodominantparadigmsusedtoanalyzethephenomena:thehumancapitaltheoryandthesignalingorsortingtheory.Extremeversionsofthesignalingtheoryofeducat

2、iondifferfromthehumancapitaltheoryatthemostfundamentallevel.Thelatterassumesthateducationcausesenhancedworkerproductivity.Theformerassumesthateducationismerelyasignalsignifyinginnatedifferencesamongstworkerstoemployerswhofacetheproblemofasymmetricinformation.Ther

3、efore,educationhasnoinherentvalue.Notsurprisingly,thesignalingmodeliscontroversial.Proponentsofthesignalingtheoryofeducationdonottrulybelievethateducationhasnoinherentvalue;theassumptionthateducationdoesnotenhanceproductivityisforillustrativepurposesonly.However,

4、theyarguethatstudieswhichemploythehumancapitalmodeloverestimatethereturnstoeducationbecausetheyignorethesampleselectionproblem(Freeman,1999).Ontheotherhand,skepticsofthesignalingtheorywonderwhyemployershavenotcreatedasimplerandlesscostlymechanismforsortingworkers

5、(Krugman,1998).Giventhesecontroversies,anoverviewoftheliteratureonthereturnstoeducationseemsnecessary.Theliteraturereviewwillbestructuredinthefollowingway.Iwillfirstdescribepapersthatusethehumancapitalmodelastheframework,butwhichattempttocontrolforthesampleselect

6、ionproblemusingexogenousinstrumentalvariables.Iwillcomparethese“correctedestimatedtothesamepaper’sOLSestimatestoseeiftheuncorrectedestimatesareindeedupperbounds.ThenIwilldiscuspapersthattestthequantitative2predictionsofthesignalingtheorytoseeifaccuratelydescribes

7、ournation’slabormarkets.Severaleconometricstudiesonthereturnstoeducationhavebeenconductedwhichattempttocontrolforunobserveddifferences,suchasthesampleselectionbiaspredictedbythesignalingmodel.Onestrategyistouseanexogenousinstrumentalvariablewhichiscorrelatedwithe

8、ducation,butnotearningsorpriorability.Contrarytothepredictionsofthesignalingmodel,whentheOLSestimatesarecomparedtothemoresophisticatedestimate,thelatterestimat