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Optimal Wage Band for Job Matching with Signaling

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  • Seungjin Han
  • Alex Sam
  • Youngki Shin

Abstract

We study an optimal wage band problem in a competitive matching labor market where education signals worker ability. We prove uniqueness of the competitive signaling equilibrium under a general class of utility and profit functions and show that the optimal wage band problem is isomorphic to a simpler optimal ability threshold problem. Using a parametric model, we analyze how wage bands improve welfare relative to no intervention. Our results highlight novel mechanisms driven by asymmetric information, contrasting with existing literature. The framework is broadly applicable to settings where agents invest in costly signals under asymmetric information in competitive matching environments.

Suggested Citation

  • Seungjin Han & Alex Sam & Youngki Shin, 2024. "Optimal Wage Band for Job Matching with Signaling," Papers 2406.01886, arXiv.org, revised Jul 2025.
    • Handle: RePEc:arx:papers:2406.01886
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    References listed on IDEAS

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    1. David McAdams, 2003. "Isotone Equilibrium in Games of Incomplete Information," Econometrica, Econometric Society, vol. 71(4), pages 1191-1214, July.
    2. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    3. Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
    4. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2025. "On the Alignment of Consumer Surplus and Total Surplus under Competitive Price Discrimination," American Economic Journal: Microeconomics, American Economic Association, vol. 17(4), pages 234-259, November.
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