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A Signaling Theory of Unemployment

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Author Info
Ching-to Albert Ma
Andrew M. Weiss

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Abstract

This 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3565.

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Date of creation: Dec 1990
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Handle: RePEc:nbr:nberwo:3565

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  1. Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2002. "Does subsidised temporary employment get the unemployed back to work? An econometric analysis of two different schemes," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A2-2, International Conferences on Panel Data. [Downloadable!]
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  2. Rodriguez-Planas, Nuria, 2004. "Signaling in the Labor Market: New Evidence on Layoffs and Plant Closings," IZA Discussion Papers 1009, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Attila Tasnadi, 2003. "A way of explaining unemployment through a wage-setting game," Bonn Econ Discussion Papers bgse14_2003, University of Bonn, Germany. [Downloadable!]
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  4. Bart, COCKX & StŽphane, ROBIN & Christian, GOEBEL, 2006. "Income support policies for part-time workers : a stepping-stone to regular jobs ? An application to young long-terme unemployed women in Belgium," Discussion Papers (ECON - Département des Sciences Economiques) 2006050, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  5. Julie Hotchkiss, 1999. "The effect of transitional employment on search duration: A selectivity approach," Atlantic Economic Journal, International Atlantic Economic Society, vol. 27(1), pages 38-52, March. [Downloadable!] (restricted)
  6. Alma Cohen, 2008. "Asymmetric Learning in Repeated Contracting: An Empirical Study," NBER Working Papers 13752, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hagen, Tobias, 2003. "Do Fixed-Term Contracts Increase the Long-Term Employment Opportunities of the Unemployed?," ZEW Discussion Papers 03-49, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  8. Rodriguez-Planas, Nuria, 2004. "Re-Employment Bonuses in a Signalling Model of Temporary Layoffs," IZA Discussion Papers 1010, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Anton Miglo, 2006. "Optimal compensation contracts under asymmetric information concerning expected earnings," Working Papers 0613, University of Guelph, Department of Economics. [Downloadable!]
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