In Short:

Providing students with full information about their abilities would increase the college and white-collar wage premia while reducing the graduation gap by family income.

Abstract

We examine how informational frictions impact schooling and work outcomes by estimating a dynamic structural model where individuals face uncertainty about their academic ability and productivity, which determine their schooling utility and wages. We account for different college types, majors, occupational search frictions, and work hours. Individuals learn from grades and wages, which may affect their choices. Removing informational frictions would increase graduation by 4.4 percentage points and by an additional 2 points without search frictions. Providing students with full information about their abilities would increase the college and white-collar wage premia while reducing the graduation gap by family income.

About the author

Peter Arcidiacono

Vice Dean for Faculty Affairs & Education and Professor, School of Government and Policy

Peter Arcidiacono is a labor economist best known for his work in three areas: college major choice, affirmative action in higher education, and structural estimation of dynamic discrete choice models.