IDEAS home Printed from https://ideas.repec.org/p/edn/esedps/134.html
   My bibliography  Save this paper

Job Market Signalling of Relative Position, or Becker Married to Spence

Author

Abstract

We consider a matching model of the labour market where workers that differ in quality send signals to firms that are also vertically differentiated. Signals allow assortative matching in which the highest quality workers send the highest signals and are hired by the best firms. Matching is consider both when wages are fixed (non-transferable utility) and when they are fully flexible (utility is transferable). In both cases payoffs are determined by relative position - the best worker gets the best job. The standard signalling model which communicates the signaller's absolute type is a special case of the current model of signalling relative position. Furthermore, in the relative model, equilibrium strategies and payoffs depend on the distributions of types of workers and the distribution of firms. This is in contrast with separating equilibria of the standard model which do not respond to changes in supply or demand. Despite incomplete information, equilibrium investment in education by low ability workers can be inefficiently low.

Suggested Citation

  • Ed Hopkins, 2005. "Job Market Signalling of Relative Position, or Becker Married to Spence," ESE Discussion Papers 134, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:134
    as

    Download full text from publisher

    File URL: http://www.econ.ed.ac.uk/papers/id134_esedps.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December.
    3. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    4. Ed Hopkins & Tatiana Kornienko, 2010. "Which Inequality? The Inequality of Endowments versus the Inequality of Rewards," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 106-137, August.
    5. Garey Ramey & Valerie A. Ramey, 2010. "The Rug Rat Race," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 129-199.
    6. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1995. "Incorporating concern for relative wealth into economic models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 12-21.
    7. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
    8. Spence, Michael, 1974. "Competitive and optimal responses to signals: An analysis of efficiency and distribution," Journal of Economic Theory, Elsevier, vol. 7(3), pages 296-332, March.
    9. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
    10. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
    11. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, vol. 96(3), pages 652-668, June.
    12. Peters, Michael, 2007. "The pre-marital investment game," Journal of Economic Theory, Elsevier, vol. 137(1), pages 186-213, November.
    13. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
    14. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 1998. "Class systems and the enforcement of social norms," Journal of Public Economics, Elsevier, vol. 70(1), pages 5-35, October.
    15. Sattinger, Michael, 1979. "Differential Rents and the Distribution of Earnings," Oxford Economic Papers, Oxford University Press, vol. 31(1), pages 60-71, March.
    16. Frank, Robert H, 1997. "The Frame of Reference as a Public Good," Economic Journal, Royal Economic Society, vol. 107(445), pages 1832-1847, November.
    17. Pesendorfer, Wolfgang, 1995. "Design Innovation and Fashion Cycles," American Economic Review, American Economic Association, vol. 85(4), pages 771-792, September.
    18. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
    19. Robert M. Costrell & Glenn C. Loury, 2004. "Distribution of Ability and Earnings in a Hierarchical Job Assignment Model," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1322-1363, December.
    20. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    21. Eeckhout, Jan, 2000. "On the uniqueness of stable marriage matchings," Economics Letters, Elsevier, vol. 69(1), pages 1-8, October.
    22. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
    23. Harold L. Cole & George J. Mailath & Andrew Postlewaite, "undated". "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
    24. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
    25. Michael Peters & Aloysius Siow, 2002. "Competing Premarital Investments," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 592-608, June.
    26. Paul Oyer, 2006. "Initial Labor Market Conditions and Long-Term Outcomes for Economists," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 143-160, Summer.
    27. Raquel Fernández & Jordi Gali, 1999. "To Each According to …? Markets, Tournaments, and the Matching Problem with Borrowing Constraints," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 799-824.
    28. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
    29. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Larry Samuelson & Andrew Postlewaite & George Mailath, 2007. "Pricing in Matching Markets," 2007 Meeting Papers 531, Society for Economic Dynamics.
    2. Bilancini, Ennio & Boncinelli, Leonardo, 2014. "Instrumental cardinal concerns for social status in two-sided matching with non-transferable utility," European Economic Review, Elsevier, vol. 67(C), pages 174-189.
    3. Peters, Michael, 2006. "Truncated Hedonic Equilibrium," Microeconomics.ca working papers peters-06-04-11-02-42-39, Vancouver School of Economics, revised 03 Mar 2009.
    4. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2017. "Premuneration Values and Investments in Matching Markets," Economic Journal, Royal Economic Society, vol. 127(604), pages 2041-2065, September.
    5. V. Bhaskar & Ed Hopkins, 2016. "Marriage as a Rat Race: Noisy Premarital Investments with Assortative Matching," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 992-1045.
    6. Peters, Michael, 2007. "The pre-marital investment game," Journal of Economic Theory, Elsevier, vol. 137(1), pages 186-213, November.
    7. Ed Hopkins & Tatiana Kornienko, 2010. "Which Inequality? The Inequality of Endowments versus the Inequality of Rewards," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 106-137, August.
    8. Bidner, Chris, 2010. "Pre-match investment with frictions," Games and Economic Behavior, Elsevier, vol. 68(1), pages 23-34, January.
    9. Rai, Birendra & Sengupta, Kunal, 2013. "Pre-marital confinement of women: A signaling and matching approach," Journal of Development Economics, Elsevier, vol. 105(C), pages 48-63.
    10. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
    11. Poeschel, Friedrich, 2012. "Assortative matching through signals," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62061, Verein für Socialpolitik / German Economic Association.
    12. Mohammadi, Ali & Shafizadeh, Mohammadmehdi & Johan, Sofia, 2014. "A Signaling Theory Of Entrepreneurial Venture’S Valuation: Evidence From Early Termination Of Venture Capital Investment," Working Paper Series in Economics and Institutions of Innovation 349, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    13. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
    14. Bilancini, Ennio & Boncinelli, Leonardo, 2018. "Wage inequality, labor income taxes, and the notion of social status," Economics Discussion Papers 2018-41, Kiel Institute for the World Economy (IfW).
    15. Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
    16. Ed Hopkins & Tatiana Kornienko, 2006. "Which Inequality? The Inequality of Resources Versus the Inequality of Rewards," Levine's Bibliography 784828000000000621, UCLA Department of Economics.
    17. Masashi Tanaka, 2013. "Human Capital Investment, Credentialing, and Wage Differentials," Discussion Papers in Economics and Business 13-31-Rev., Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Aug 2017.
    18. Chris Bidner & Guillaume Roger & Jessica Moses, 2016. "Investing in Skill and Searching for Coworkers: Endogenous Participation in a Matching Market," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 166-202, February.
    19. Bilancini, Ennio & Boncinelli, Leonardo, 2013. "Disclosure of information in matching markets with non-transferable utility," Games and Economic Behavior, Elsevier, vol. 82(C), pages 143-156.
    20. Trégouët, Thomas, 2015. "Gender-based price discrimination in matching markets," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 34-45.
    21. Friedrich Poeschel, 2008. "Assortative matching through signals," Working Papers halshs-00585986, HAL.

    More about this item

    Keywords

    signalling; relative position; matching; tournaments;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:edn:esedps:134. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Research Office). General contact details of provider: http://edirc.repec.org/data/deediuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.