Testing the Educational Screening Hypothesis

TLDR

Human‑capital theory predicts education is pursued until marginal productivity equals marginal cost, yet income‑education‑ability correlations also fit a model where education screens for exogenous ability differences. This study examines whether education’s informational screening function varies across occupations. The authors isolate subsamples of occupations classified as screened versus unscreened and compare outcomes. Results show that observed differences, unexplained by the traditional model, support the educational screening hypothesis.

Abstract

Human capital theorists have traditionally argued that individuals invest in education until the marginal gain in productivity is equal to the marginal opportunity cost. However, the observed correlations among income, education, and ability measures are also consistent with education being used to screen for exogenous ability differences. This paper tests for such an informational role, arguing that screening will be much more important in some occupations than in others. Subsamples of "screened" and "unscreened" occupations are isolated and compared. It is concluded that observed differences, not readily explained by the traditional model, are consistent with the educational screening hypothesis.