An Empirical Test of Alternative Theories of Educational Inequality

A classic issue in education centers on the nature of the relationship between schooling and labor market outcomes. Three general theories of this relationship are the human capital view, the market signal view, and the credentialist view. All three approaches predict a positive association between education and wages, but they differ in regard to its underlying causes. We argue that these theories may be fundamentally differentiated in terms of their implications for productivity, and we provide some relevant findings using productivity data for US manufacturing industries from 1976 to 1996. The results most strongly support the market signal view which emphasizes the association between productivity and relative educational attainment due to the role of the latter in certifying more reliable and trainable workers.