The H. Gregg Lewis prize for the best paper published in the Journal of Labor Economics during 2006-2007 has been awarded to Fabian Lange for his article “The Speed of Employer Learning,” which appeared in the January 2007 issue of the Journal.

Robert Willis, Fabian Lange

David Wentworth, Columbia University

The Prize Committee of David Lee (Chair), Steven Haider, and the previous Lewis prize winners, Pascal Courty and Gald Marschke, selected Lange’s study from an impressive group of papers that were published during this two-year period. This article makes an important contribution to the empirical analysis of employer learning and job market signaling. Existing studies show that the earnings-experience relationship is increasing in abilities unobserved to the employer and decreasing in observable measures of skill, such as schooling; these patterns are consistent with models of statistical discrimination and employer learning. Lange’s study points out that the speed at which employers learn is critical to assessing the empirical relevance to statistical discrimination and the signaling motive for schooling choices. The paper proposes a way to estimate the speed of this learning, and his careful empirical analysis suggests that employers learn fast, with initial expectation errors declining by about 50 percent in about 3 years. Furthermore, Lange shows how the assumption that workers choose schooling to maximize the present value of lifetime earnings allows permits providing an upper bound on the contribution of signaling to an additional year of schooling, which he reports to be around 10 percent. This thoughtful and careful theoretical and empirical analysis will surely benefit future students and researchers of this important and longstanding question in labor economics.