The Importance of Signalling in Job Placement and Promotion

by Andrew Heisz and Philip Oreopoulos
Statistics Canada

Abstract

In a setting where training or promotion opportunity depends positively on expected initial ability, the effects from signalling initial skills on earnings may last well beyond the period when knowledge of a workers’ skill set is fully known. This paper proposes extending recent tests for signalling to better accommodate training differences by using firm-level characteristics and apply these tests to a large sample of MBA and law graduates from different ranked schools. If training is greater at firms that hire workers with better expected-ability, earnings adjustments after controlling for initial firm should be correlated with new information about productivity, but not with initial signals of productivity. This is what the paper finds.

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