Galindo-Rueda, Fernando; (2003) Essays on Education and Wage Inequality. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

This thesis explores four themes related to wage inequality, with particular emphasis on differences between seemingly identically educated individuals. The effects of cognitive ability on measures of labour market success are assessed after providing new evidence on the socioeconomic determinants of ability progression and educational attainment for two British birth cohorts. Implications for the evolution of meritocracy in Britain follow from cross-cohort comparisons in which the relative importance of ability and socioeconomic family background are considered. By exploring the role of ability and education, it is possible to test and reject the hypothesis that individual ability is perfectly observable to British employers, who partly value education as an indicator of actual skills. Existing employer-learning theories are drawn upon to develop a model of asymmetric learning about ability. Estimates confirm that incumbent employers learn faster than other potential employers about the ability of less skilled workers, thus giving them an important informational advantage. Competition in the labour market is likely to be hindered as a result. This is followed by an analysis of the reasons why highly educated individuals are often employed at jobs for which they are excessively qualified. Evidence from European panel data shows that wage differences associated with degrees of 'match quality' are due to a large extent to individual heterogeneity. Job mobility patterns, wherein 'mismatched' individuals are more likely than others to have 'positive' and 'negative' job changes, suggest that employers use 'mismatch' spells to screen workers. Finally, this thesis proposes microeconomic foundations for matching in an on-the-job search model of the labour market. Frictions explain why firms differentiate themselves by offering higher wages to attract more applicants. This model is extended both to explain why better-paying firms invest more in capital and to endogenise individual search efforts, with implications for identification strategies in empirical studies.

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