Statistical Discrimination and the Returns to Human Capital and Credentials
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Number in series: 36
The theory of statistical discrimination predicts lower returns to investments in human capital prior to labor market entry for minority groups if such investments are not directly observable to future employers. Lower returns lead to lower optimum levels of human capital and lower average wages for minority groups. This explanation of a persistent wage gap is extended to a model where individual investments in education lead to both higher human capital and observable credentials. The predictions about the returns to human capital and average wages carry over, and new predictions about wage distributions and the returns to credentials are derived.
JEL: J31, J71
Project:Oppdragsgiver: Norges forskningsråd
Frisch prosjekt: 1101 - Qualifications, education, and productivity