We compare four explanations for the value of diplomas, each of which has implications for unemployment and wage variation amongst graduates, most of which have not previously been tested for when seeking to explain the effects of diplomas. We test for these implications using a refined econometric framework, exploiting idiosyncrasies in Mexican labour market and educational institutions. Premiums in Mexico appear to result from diplomas tied to jobs with downwards rigid wages - an uncommon but simple explanation. The standard explanations, including screening, are not suggested by Mexican data. Our results illuminate how labour markets segmented by diplomas clear. This depends upon the nature of the labour market rigidities exactly as predicted by neoclassical theory.
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Document Type: Research Article
University of California - Santa Barbara, Santa Barbara, CA 93106, USA
EGAP/ITESM Campus Monterrey, Av. Eugenio Garza Sada 2501 Sur, Edificio DAF 230, Monterrey, N.L. Mexico, C.P. 64849
Publication date: 2008-12-01
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