A test of employer learning in the labour market for young Australians

Abstract

This paper reports a test of employer learning for a panel of young Australian men. The information contained in a test score is found to already be observed by employers at the time a worker enters the labour market. However the return to parental education is found to increase with experience, indicating that the attributes reflected in this variable are initially harder for employers to observe, and that learning occurs with respect to them. When the sample is partitioned by hiring channel, these effects are confined to workers who were recruited through less informative channels.

Notes

¹ Farber and Gibbons (1996) propose a related test using the component of z that is uncorrelated with the employer's initial information. Since this is uncorrelated with s by construction, their test predicts that the coefficient on s will not vary with experience.

² Further details are available in a working paper version of this article.

³ Farber and Gibbons (1996) derive their version of this result in terms of wage levels instead of logs.

⁴ This is the result labelled as ‘Proposition 2’ in Altonji and Pierret (2001).

⁵ Thus the information conveyed to employers by an individual's years of education is the same in all years in which they contribute a wage observation. Similarly, actual work experience was only counted after the respondent had ceased all studies.

⁶ Women were not considered because their education and labour supply decisions are subject to different considerations to those of men. As a result women in the LSAY have less work experience on average than men, making it more difficult to identify employer learning amongst them.

⁷ Where this information was available for only one parent, that value was used alone.

⁸ Test scores are missing for fewer than 2% of all person-year observations. Unfortunately, parental education is missing in 25% of person-year observations.

⁹ Complete results are available on request to the author.

¹⁰ The effect of parental education at zero experience is negative in column 8, but not statistically significant.