טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentSusanna Krupitskiy
SubjectThe Market Value of an Ability Signal and of Human Capital-
Empirical Study Using Wages of Alumni of the
University of Haifa
DepartmentDepartment of Industrial Engineering and Management
Supervisor Full Professor Bar Ilan Avner
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract

In this research we study the market value of an ability signal and that of human capital. To that end we employ a unique data set that contains data on recent alumni of the University of Haifa.

Education might function as double purpose.  On one hand education can indicate potential ability, and it therefore can function as an ability signal. On the other hand education attributes to the human capital of the person, so it can be served as a proxy to human capital. The purpose of this research is to separate between the wage contribution of education to human capital and as an ability signal.

The hypothesis of this research is that the market pays different wages to people with different characteristics. In other words, we expect to see that the market value of workers with better ability signal or more human capital is higher than otherwise.

Using data on alumni from four different departments at the University of Haifa we will separate between the ability signal and human capital as follows: we will define the Economics department alumnus as one with ability signal and human capital. The Communication or Psychology department alumnus will be defined as a person who has ability signal only. The History of Israel alumnus will be defined as one who does not possess both the ability signal and human capital.

We have detailed data on 729 alumni of the University of Haifa who graduated during the period 2000-2007. 266 are economics majors, 238 are psychology majors, while 188 are communication majors and 37 majored in the history of Israel.

Using OLS and Probit regressions, our empirical results show that, on average, the market value of the ability signal is approximately one and a half as large as that of human capital. Human capital of economics majors contributes about 2,435 NIS per month for a male, 1,644 NIS per month for female and 2,080 NIS per month for a non- Jew male, depending on their personal characteristics. The market value of the ability signal is about 3,623 NIS per month for a male, 3,419 NIS per month for female and 2,988 NIS per month for a not a Jew male, also depending on their personal characteristics.

Moreover we show that the presence of ability signal and/or human capital affect also the probability and the nature of employment.