The questionable role of higher education as an occupational screening device

Abstract

Employers optimally pursue activities which facilitate the coordinating of employee characteristics and the requirements of the job. One allegedly important employee characteristic is the level of education. Employees with higher levels of education are rewarded with higher wages than employees with lower levels. This may occur if higher levels of education make an employee truly more productive or if because of an employer's beliefs only those individuals with higher levels of education are allowed to enter the higher paying positions (occupational screening).

The above propositions are testable, depending crucially upon the theoretical model employed for determining occupational choices. We shall compare the implications of two possible occupation choice models: (1) enter the job which offers the highest lifetime income, (2) enter the job which offers the highest level of overall satisfaction. We estimate these two models using the NBER-TH data sample. By distributing our estimated results and the actual distribution of occupations over the education levels of high school, some college and BA we can see if more or less people are expected to enter specific occupations at each education level. Support for screening exists if more people are expected in high status occupations at low education levels than are actually in those occupations.

When comparing the estimated results for each model we see different outcomes emerge. The latter indicates that screening does not exist while the former does. We present arguments as to why we feel that the second model is the more correct and appropriate and, consequently, why we feel that education is not an effective screening device.