GED's Signaling Value in the Labor Market

GED's Signaling Value in the Labor Market

Tyler, Murnane, and Willett(2000) research the role of (General Education Development) GED in labor market signaling. They analyze whether GED correlates with the wages and salaries earned in the labor market. In their research, they categorize the workers as either white and non-Hispanics, the majority, and the minority, which is made up of Hispanics, African Americans, and others. A GED is a high school credential equivalent that is a second chance for high school dropouts (Tyler, Murnane, & Willett,2000). The variation will see the signaling value of GED of the stringency in different states. An experiment will determine whether those who attain identical GED scores but with different status signals are similar. In doing so, the effect of human capital on earnings is canceled out, making the signaling value of the GED clear. Because human capital or signaling theory can explain the returns to a GED, this study is to estimate the signaling value of a GED by canceling out any human capital effect. 

The motivation for this study is to identify whether the labor markets value signaling from the GED credential in determining earning rather than the education's effect on the learner, which is human capital. Research shows that holders of a GED credential have a more significant advantage in the labor market when compared to dropouts(Tyler, Murnane, & Willett,2000). However, it has been challenging to determine whether it is due to human capital or signaling. The research thus adopts an identification strategy that will help determine the signaling effect of GED on earnings. 

As an identification strategy, comparisons between low-skilled GED holders and high-skilled dropouts are made. The earnings from these two groups will identify the signaling value of the GED. If the low-skilled GED holders earn higher than the high-skilled dropout, it will be interpreted that GED has a signaling value in the labor market. Another identification strategy in the research is using GED interstate variations. Some states have a lower passing standard for GED than others. The study had the earnings of individuals who have attained GED test scores from a state with lower passing standards compared to those with identical test scores but from a state with higher passing standards(Tyler, Murnane, & Willett,2000). The outcome may be quite biased as the earnings may be due to human capital factors that the research nets out. The research concludes that the problem posed by this bias is relatively insignificant. The state labor market’s policies are first accounted for before progressing to measure the GED signaling impact. 

The methods section of the research discusses the candidates from the states named as the sample. It also provides details on the research design of the study. The data obtained relates to the year 1990 and is from 45 states. The research uses the minimum and mean passing scores and applies only three passing standards to the study. From minimum and mean scores, the researchers create score groups that will be used to experiment with comparisons regarding which group they belong to(Tyler, Murnane, & Willett,2000). The data obtained for the research provided information on demographic factors, the test scores of the GED and from which state they were obtained, and lastly, the earnings of the sample of dropouts obtained for the study. The candidates for this study are aged 16 - 21, and their earnings information was obtained from the social security administration in 1990. The pretreatment data from 1988- 1989 and post-treatment data from 1991 to 1995 are used in the experiments to make the study more effective. 

The study results indicate an increase in annual earnings for white dropouts who pass GED exams due to the signaling value in the labor market. However, the post-treatment earnings of white dropouts from 1991 to 1995 indicate that GED credentials take time to yield higher earnings results. However, by the fifth year, the credentialed GED holders are paid higher than the uncredentialed dropouts with similar GED scores. 

The results indicate that the signaling effect on earnings is not there for those in minority groups who pass GED examinations. The experiment on dropouts reveals a significant difference between white and non-white dropouts in terms of earnings. As the pretreatment contrast indicates, acquiring a GED does not result in more earnings for dropouts from minority groups. The explanation for these findings is explained in the research. Data indicates that 17 percent of the minority group of young males had attained their GED while in prison(Tyler, Murnane, & Willett,2000). The earnings of prisoners are usually somewhat low, or the GED holder may still not be released; hence the research shows no difference(Darolia, Mueser & Cronin, 2021). Also, employers may engage in discriminatory rises in earnings for the non-whites with a GED credential. This eliminates the signaling value of GED in the labor market. 

The paper’s findings indicate a substantial signaling effect of GED for low-skilled dropouts, and I undoubtedly agree. The labor market raises the amount earned by the dropouts who acquire GED credentials. This proves that GED acts as a signal in the labor market, and thus there arises a preference for low-skilled GED holders over the high-skilled uncredentialled dropouts. This is especially so because the employer is not aware of the skills of the latter, and therefore the GED holder will end up earning higher. However, the researchers state that the signaling value of the GED has negative social returns as earnings are raised at the expense of those that do not have a GED. In my opinion, the negative social returns are not a factor since resource costs apply for one to be GED credentialled(Ehrmantraut, Pinger & Stans, 2020). 

In my opinion, the use of low-skilled dropouts with a GED against high-skilled dropouts with no GED to conduct the study raises the validity and reliability of its findings(Ehrmantraut, Pinger & Stans, 2020). This is because the previous research, such as the Cameron and Heckman research, compared dropouts without consideration of the skills held (Cameron & Heckman, 1993) The difference in earnings attributed to signaling would be arguably not significant. This is because higher earnings may be due to human capital rather than being because of being GED credentialled. Tyler, Murnane, and Willett(2000) cancel off any human capital factor showing that more earnings for the GED holders than the dropouts are because the credential signals higher cognitive skills. 

Although the interstate variation in passing standards may hold significant bias in the result, the research accounts for most of the bias. The policies in the different states related to earnings are examined with the labor market preferences (Ren, 2022). GED State passing standards are found to have a signaling impact on earnings. This is because higher standards signal motivation and persistence, which are productivity qualities.
    

References

Cameron & Heckman, J. J. (1993).The Nonequivalence of High School Equivalents," Journal of Labor Economics, XI (1993), 1-47.

Darolia, R., Mueser, P., & Cronin, J. (2021). The labor market returns to a prison GED. Economics of Education Review, 82, 102093. 

Ehrmantraut, L., Pinger, P., & Stans, R. (2020). The expected (signaling) value of higher education. 

Ren, C. (2022). Cohort, signaling, and early-career dynamics: The hidden significance of class in black-white earnings inequality. Social Science Research, 102710. 

Tyler, J. H., Murnane, R. J., & Willett, J. B. (2000). Estimating the labor market signaling value of the GED. The Quarterly Journal of Economics, 115(2), 431-468.