Duration to First Job and the Return to Schooling: Estimates from a Search-Matching Model

Abstract

This paper investigates the properties of the joint distribution of the duration to the first post-schooling full-time job and of the accepted wage for that job within a search-matchingbargaining theoretic model. The model provides an interpretation of the observations on duration to first job and accepted wages that differentiates between behavioural influences and market fundamentals in determining the accepted wage-schooling relationship. The return to schooling is appropriately measured by differences in the wage offer distribution, which depends only on market fundamentals. We use data from the 1979 youth cohort of the National Longitudinal Surveys of Labor Market Experience to follow several school-leaving cohorts of young males. A model which allows for five types of heterogeneous workers within schooling/race groups fits the duration and wage data well for all such groups. Offer probabilities for all groups are estimated to be close to one. Mean offered wages are about $1000 less than mean accepted wages and the internal annual rate of return for attending college relative to graduating from high school is 32% for blacks and 17% for whites. This paper investigates the properties of the joint distribution of the duration to the first post-schooling full-time job and of the accepted wage for that job within a search-matching-bargaining model. It is a well established empirical regularity that hazard rates are decreasing with the duration of search (unemployment). It is also true for the data we use that the sample mean of the accepted wage associated with the first job is not increasing with duration. These findings hold for both black and white male youth at all levels of schooling. Conditional on schooling, however, the time between leaving school and working at the first full-time job is longer for blacks and their accepted mean wage is lower. Conditional on race, the time between leaving school and working at the first full-time job is shorter for those with higher levels of schooling and their accepted mean wage is higher. Interestingly, blacks display a similar pattern of duration and accepted wages to whites who are one level of schooling below, e.g. black high-school graduates and white high-school dropouts.