The signalling power of education by size of firm and the long‐term effects on workers’ careers

Abstract

The paper seeks to separate the signalling effect of education on first entry into the labour market and the long‐term influence of its human capital component on earnings. It is claimed that large firms attach more importance than small ones to the signalling component of education. Thus it is assumed, first, that highly educated young people are more likely to be recruited by a large company. Second, size of firm at first job is likely to some extent to be predictive of earnings patterns and career opportunities. Lastly, it is assumed that returns to professional experience and education are likely to be more subject to erosion in large firms than in small ones once the influence of education on the first appointment has been taken into account. In order to test these hypotheses, a multinomial Logit selection model is estimated. The findings are widely consistent with the hypotheses and support the idea that the signalling impact of education is stronger in large firms than in small ones, which might explain wage inequality among workers endowed with the same amount of education.