Evidence on the Relationship between Firm-Based Screening and the Returns to Education

We explore the relationship between the signalling role of education and direct screening measures adopted by employers using a matched employee-employer data set drawn from the 1998 Workplace Employee Relations Survey for Great Britain. We identify which firms use personality/attitude and/or performance/competency tests during the hiring process and, by combining this and other firm level information with employee level characteristics, investigate whether such tests affect the signalling role of education. Our results suggest that hiring tests inhibit the signalling role of education, and that a failure to control for such tests may bias estimates of the returns to education.