Tag Archives: signalling

Is education worth it?


The dark underbelly of the signalling value of engagement rings


Source: Newmark’s Door: Some notes on comparable worth.

Financial market wrongdoing: Fines vs reputational sanctions

Source: Financial market wrongdoing: Fines vs reputational sanctions | VOX, CEPR’s Policy Portal

Drug testing helps minority job applicants @jacindaardern

Statistical discrimination is a harsh mistress. If reliable measures of the quality of job applicants are unavailable for short-listing, such as credit checks, coarser, less reliable screening devices will be employed. That was the case when credit checks were prohibited in employment recruitment:

Looking at 74 million job listings between 2007 and 2013, Clifford and Shoag found that employers started to become pickier, especially in cities where there were a lot of workers with low credit scores. If a credit-check ban went into effect, job postings were more likely to ask for a bachelor’s degree, and to require additional years of experience.

There are other ways that employers could have also become more discerning, Shoag says. They might have started to rely on referrals or recommendations to make sure that applicants were high-quality. In the absence of credit information to establish trustworthiness, they may even have fallen back on racial stereotypes to screen candidates. The researchers couldn’t measure these tactics, but they’re possibilities.

Drug testing allows employers to dispel less accurate stereotypes about drug use among different ethnic and social groups. They increased hiring of minorities because a reliable measure became available of their drug use:

…after a pro-testing law is passed in a state, African-American employment increases in sectors that have high testing rates (mining, manufacturing, transportation, utilities, and government).

These increases are substantial: African-American employment in these industries increases by 7-30%. Because these industries tend to pay wage premia and to have larger firms offering better benefits, African-American wages and benefits coverage also increase. Real wages increase by 1.4-13% relative to whites. The largest shifts in employment and wages occur for low skilled African-American men.

I also find suggestive evidence that employers substitute white women for African-Americans in the absence of testing. Gains in hiring African-Americans in these sectors may have come at the expense of women, particularly in states with large African-American populations.

Employers test for drug use both for health and safety reasons and as a way of screening out less reliable employees. People who break the rules are not reliable employees and that includes taking drugs. In low skill jobs, what employers seek is a recruit who is friendly and reliable.


Testing of the skills of workers also showed similar results. What happened is that the ratio of black to white hirings do not change. The administration of these skills tests allowed the more productive of both white and black job applicants to be identified and hired.

Employers already had an accurate stereotype of the average skills of different ethnic groups. Administration of tests allow them to identify which members of each group were the most productive.

It is a standard result that statistical discrimination improves the chances of below-average applicants subject to the stereotype but harms those of above average quality. For that reason, applicants look for what methods of counter-signalling to show that they are indeed a quality applicant – make themselves stand out from the crowd.

Employers profit from developing screening devices that go beyond stereotypes to identify above-average applicants. They want screening devices that find those who do not otherwise stand out from the crowd because of difficulties in transferring credible information about their quality. This is a special difficulty with low-skilled vacancies because hiring is made based much more than on character than experience.

Why do inmates tattoo their faces?

Source: Managerial Econ: Why do inmates tattoo their faces?

There is an economic literature on feuds and duelling

Indian parents are scaling walls to help their kids cheat because economics

I ask what is the point of passing an exam where there is widespread cheating, and in consequence the exam has little credibility. What is the point of holding an exam when there is widespread cheating?

If you seek to learn skills, cheating would be totally counter-productive. But if the exam simply produces a credential that people accept, students look for ways to get the credential as painlessly as possible.

Cheating works best if the signalling model of education is true. Students should cheat more in those courses that offer the least productivity gains.

Serious cheaters have been found to be more likely to be younger and have a lower grade point average. But as  argues

“I sometimes find evidence of cheating on exams but I rarely take action, I don’t have to.  Almost invariably the cheaters get abysmally low grades even without penalty.

Some people I know get annoyed when students without evident handicap ask for and receive special treatment such as extra time on exams.  I comply without rancor as the extra time never seems to help.  Over the years I have had a number of students ask for incompletes.  None have ever become completes.

I call this the law of below averages.”