Job Market Signaling Research Articles

The speed of employer learning and job market signalling revisited

This article discusses the claim made by Altonji and Pierret (AP) (1997) and Lange (2007) that a high Speed of Employer Learning (SEL) indicates a low value of Job Market Signalling (JMS). It is first discussed intuitively in the light of Spence's original model and then evaluated in a simple extension of a model developed by AP (1997). The analysis provided indicates that, if Employer Learning (EL) is incomplete, a high SEL is not necessarily indicative of a low value of JMS.

The Speed of Employer Learning and Job Market Signaling Revisited

The Speed of Employer Learning and Job Market Signaling Revisited

Educational opportunity and income inequality

Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university—generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the ‘signaling’ role of education first explored by Spence [Spence, A. Michael, 1973. Job Market Signalling, Quarterly Journal of Economics, 87(3) Aug., 355–374]. When borrowing for education is difficult, lack of a college education could mean that one is either of low ability or of high ability but with low financial resources. When government programs make borrowing or lower tuition more affordable, high-ability persons become educated and leave the uneducated pool, driving down the wage for unskilled workers and raising the skill premium.

Job Market Signaling and Screening: An Experimental Comparison

Job Market Signaling and Screening: An Experimental Comparison

Education and Job Market Signalling: How Robust is the Nexus?

In this paper the Signalling approach to the explanation of wage differentials is analyzed in a critical way. Departing from the classic Spence's model, the article shows how the introduction of inequalities in accessing to education leads to separating equilibria characterized by redistributive effects among workers and firms. Moreover pooling equilibria can also exist as effect of such inequalities.

Income taxation and job-market signaling

This paper develops a model of taxation with asymmetric information between the worker and the employer as well as between the worker and the tax collector. We show that if the informational asymmetry in the labour market is solved through signaling, implications for taxation are strong. Taxing the signal directly, as well as imposing a progressive tax on income, are both shown to have favourable welfare consequences locally. In contrast to the results obtained for the progressive income tax, we show that taxing the signal directly is likely to reduce other distortions. The optimal tax fully exploits the possibilities to tax the signal directly before using progression.

Signalling in a Dynamic Labour Market

This paper analyzes a multiperiod version of the Spence Job Market Signalling Model in which workers cannot commit to an education choice and firms make wage offers at any point in time. The dynamic competition combined with the incomplete information yield a multiplicity of sequential equilibria, including ones that sustain implicit collusion, even though the length of the game is finite. Emphasis is placed on equilibria that satisfy the “independence of never weak best response” criterion of Kohlberg and Mertens (1986). It is shown that in the limit, as the time between offers tends to zero, any such equilibrium results (in expectation) in the unique stable outcome of the static Spence model.

JOB SIGNALLING and WELFARE IMPROVING MINIMUM WAGE LAWS

Job market signalling (via education) models assume workers know their marginal productivities before accepting jobs, but employers do not. Yet modern theories of the firm predict positive cross partial derivatives among factors. Factor owners thus cannot know their marginal products before interacting with others. Any empirical claim that education is being used for socially wasteful signalling is therefore suspect. Exceptional but underpaid workers can in any case shirk down to the common level instead of obtaining education. The recent finding that minimum wage laws could curb wasteful signalling might thus be a solution in search of a problem.

Job Market Signaling

Publisher Summary This chapter discusses job market signaling. The term market signaling is not exactly a part of the well-defined, technical vocabulary of the economist. The chapter presents a model in which signaling is implicitly defined and explains its usefulness. In most job markets, the employer is not sure of the productive capabilities of an individual at the time he hires him. The fact that it takes time to learn an individual's productive capabilities means that hiring is an investment decision. On the basis of previous experience in the market, the employer has conditional probability assessments over productive capacity with various combinations of signals and indices. This chapter presents an introduction to Spence's more extensive analysis of market signaling.