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 InfoPaper provided by Boston University - Department of Economics in its series Papers with number 7.
Length: 25 pages
Date of creation: 1991
Date of revision:
labour market ; unemployment;
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