A signaling theory of unemployment
AbstractThis paper presents a signaling explanation for unemployment. The basic idea is that employment at an unskilled job may be regarded as a bad signal. Therefore, good workers who are more likely to qualify for employment at a skilled job in the future are better off being unemployed than accepting an unskilled job. We present conditions under which all equilibria satisfying the Cho-Kreps intuitive criterion involve unemployment. However, there always exist budget balancing wage subsidies and taxes that eliminate unemployment. Also, for any unemployment equilibrium, either there always exists a set of Pareto improving wage taxes and subsidies, or we give conditions under which there exists a set of Pareto improving wage taxes and subsidies.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 37 (1993)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/eer
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