Paper #560

Títol:

Educational opportunity and the college premium

Autors:

Igal Hendel, Joel Shapiro i Paul Willen

Data:

Maig 2001

Resum:

Since World War II, the United States government has made improved access to higher education a priority. This e�ort has substantially increased the number of people who complete college. We show that by reducing the effective interest rate on borrowing for education, such policies can actually increase the gap in wages between those with a college education and those without. The mechanism that drives our results is the �signaling� role of education first explored by Spence (1973). We argue that financial constraints on education reduce the value of education as a signal. We solve for the reduced form relationship between the interest rate and the wage premium in the steady state of a dynamic asymmetric information model. In addition, we discuss evidence of decreases in borrowing costs for education financing in the U.S.

Paraules clau:

College loans, education signalling, college wage premium

Codis JEL:

I22, I28, J31, D82

Àrea de Recerca:

Microeconomia

Publicat a:

Journal of Public Economics, Volume 89, Issues 5-6, pp. 841-870, June 2005

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