We consider a signaling model of the job market in which workers, before choosing their level of education, have the opportunity to undertake an unobservable investment in activities aimed at saving on future education costs. Suciently high levels of investments allow a low productivity worker to cut the marginal costs of signaling below the high productivity worker's. In contrast to standard results, we nd that the equilibrium outcome will depend on the relative magnitude of workers' average productivity. If average productivity exceeds a certain threshold the most plausible solution is a rened pooling equilibrium in which all workers attain the same level of over-education and are paid the same wage. Otherwise, the most plausible outcome is the standard least cost separating equilibrium in which only high ability workers are over-educated.
Brighi, L. e M., D'Amato. "Investment in early education and job market signaling" Working paper, DEMB WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi - Università degli Studi di Modena e Reggio Emilia, 2020. https://doi.org/10.25431/11380_1215256
Investment in early education and job market signaling
Brighi, L.;
2020
Abstract
We consider a signaling model of the job market in which workers, before choosing their level of education, have the opportunity to undertake an unobservable investment in activities aimed at saving on future education costs. Suciently high levels of investments allow a low productivity worker to cut the marginal costs of signaling below the high productivity worker's. In contrast to standard results, we nd that the equilibrium outcome will depend on the relative magnitude of workers' average productivity. If average productivity exceeds a certain threshold the most plausible solution is a rened pooling equilibrium in which all workers attain the same level of over-education and are paid the same wage. Otherwise, the most plausible outcome is the standard least cost separating equilibrium in which only high ability workers are over-educated.File | Dimensione | Formato | |
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