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Job market signals and signs

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  • Jorge M. Streb

Abstract

What happens to job market signaling under two-dimensional asymmetric information? With 2 types of productivity and noise, the equilibrium remains separating if an extended single-crossing condition is satisfied. If not, there are partially pooling equilibria where only extreme types can be distinguished, and supplementary information is needed. On-the-job interaction gives employers private information on productivity, which employment relationships may reveal to the market. While sticky wages lead to public revelation of this private information through dismissals, flexible wages do not, allowing employers to do cream skimming. Beyond the 2x2 case, employment relationships are always a noisy sign, so education is valuable as a life-time job market signal for high-ability workers.

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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 326.

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Length: 39 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:cem:doctra:326

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Keywords: two-dimensional asymmetric information; private information; informational rents; single-crossing; signals; signs;

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References

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  1. Spence, A. Michael, 2001. "Signaling in Retrospect and the Informational Structure of Markets," Nobel Prize in Economics documents 2001-6, Nobel Prize Committee.
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  14. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
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  18. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
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