Working Paper: NBER ID: w22325
Authors: Peter Arcidiacono; Esteban Aucejo; Arnaud Maurel; Tyler Ransom
Abstract: This paper investigates the role played by informational frictions in college and the workplace. We estimate a dynamic structural model of schooling and work decisions, where individuals have imperfect information about their schooling ability and labor market productivity. We take into account the heterogeneity in schooling investments by distinguishing between two- and four-year colleges, graduate school, as well as science and non-science majors for four-year colleges. Individuals may also choose whether to work full-time, part-time, or not at all. A key feature of our approach is to account for correlated learning through college grades and wages, whereby individuals may leave or re-enter college as a result of the arrival of new information on their ability and productivity. Our findings indicate that the elimination of informational frictions would increase the college graduation rate by 9 percentage points, and would increase the college wage premium by 32.7 percentage points through increased sorting on ability.
Keywords: Informational Frictions; College Graduation; Labor Market Outcomes
JEL Codes: C35; D83; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elimination of informational frictions (D83) | college graduation rates (I23) |
| improved sorting based on ability (C52) | college wage premium (J31) |
| grades and wages (J31) | beliefs about abilities (D83) |
| information (Y50) | educational attainment (I21) |
| information (Y50) | labor market outcomes (J48) |