Essays on the economics of information, education and job search

This dissertation studies the role of subjective expectations in education and labor market decisions. The first chapter analyses the impact of the labor market experience of household members (siblings) on young adults' beliefs about wages and their human capital investment. The South African Cape Area Panel Study is used to test predictions of a dynamic learning model of education and labor market entry decisions given subjective beliefs about wages and ability. Youths with limited information put a large weight on the experience of their siblings when forming wage expectations. This social learning process influences their reservation wages and, consequently, their education and labor market entry decisions. These findings imply that targeting the provision of information and employment programs in high unemployment/low information areas can raise incentives to accumulate human capital, thereby reducing inequalities in educational attainment. The second chapter analyses the role of labor market expectations on labor force participation and job search intensity. Still using the Cape Area Panel Study, changes in the job search status, search intensity and reservation wages of unemployed young adults are related to changes in their subjective beliefs about the wage distribution. The empirical analysis provides evidence that unemployed young adults do not stop searching because of expected low returns to search but high search costs combined with credit constraints restrict their search intensity. The third chapter, which is co-authored with Professor Etienne Wasmer, analyses the incentive effects of an admissions program rewarding effort among disadvantaged high school students. We use an experiment run since 2001 by Sciences Po, a French selective higher education establishment which signed agreements with high schools from deprived neighborhoods to admit their best students. Using differences-in-differences, we find that the program had, overall, little effect on aggregate high school-leaving examination results. However, the attractiveness of participating high schools to students from higher socio-economic status families increased significantly. While these findings imply that such geographically-targeted "affirmative action" can increase social diversity in high schools in deprived areas, they are consistent with the view that premarket discrimination is not an important driver of lower achievement at the school level.