Education and Higher Wages

Excerpts from the Paper

Education and Higher Wages
The link between education and higher wages is primarily due to signalling and screening. Although, as noted in the literature (Kubler et al.; Stiglitz; Weiss) external factors such as competition and labour market forces can complicate the wage equation, it is clear that higher wages can be predicted by the prevalence of signals and screening variants regarding an investment in education.
Kubler et al. note that signalling, as conceptually devised by Spence (1973), reflects that individuals invest in education so that it may serve as a signal to potential employers. By choosing to invest in education, workers distinguish themselves from those not focussed on potentially bettering themselves. Kubler et al. state...

.....on is correlated with prosperity, signalling and screening may still provide the most significant explanation of the relationship between education and higher wages. This is because, as Weiss notes, the length of schooling may indicate an ability to learn, or indicate how much was learned per year at school.
References
Kubler, D., Muller, W. and Normann, H-T. “Job Market
Signaling and Screening: An Experimental Comparison.” Institute for the Study of Labour Discussion Paper 1794 (2005).
Stiglitz, J. “The Theory of "Screening," Education, and the
Distribution of Income.” The American Economic Review 65(3) (1975): 283-300.
Weiss, A. “Human Capital vs. Signalling Explanations of
Wages.” The Journal of Economic Perspectives 9(4)(1995): 133-154.