Job matching through the signaling mechanism

Abstract

Necessary and sufficient conditions are provided for the possibility that the allocation of individuals to jobs through the signaling mechanism is inefficient. That is, there might exist a Pareto ordering of sorting equilibria that share the same signaling cost structure, i.e. completely separating equilibria in which an individual devotes the same amount of resources to the signaling activity. The second part of the paper is devoted to a discussion of the effect of the strategy sets of the ‘active players’ — the firms. (Workers are ‘passive players’ in the sense that they react to the wage schemes they face.) One of the results of this analysis is that increasing the strategy sets might lead to the exclusion of the Pareto superior sorting equilibrium.