The impact of academic competencies on wages, unemployment, and job performance

Abstract When schooling is controlled, tests assessing competence in mathematical reasoning, science, and English have almost no impact on wage rates and earnings during the eight years following high school graduation in NLS-Youth and other data sets. Analyses of military data sets, however, indicate that these same tests are good predictors of job performance. The conclusion is that the market rewards competencies signalled by credentials. Competencies not signalled by credentials go unrewarded for many years because employers do not know which job applicants have them and because workers and employers prefer employment contracts in which wage rates adjust only partially to reflect outstanding performance.

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