Signalling and Self-Insight in the Job Market
The allocation of talent in a society is an important determinant of productivity and growth. I study the informational role of education on the allocation of talent in a two-sector model where education provides workers information about their abilities. When workers and firms are equally ignorant about the abilities of a worker the unique equilibrium (Pareto-efficient) induces the mediocre to educate, while the least and the most able skip education. When workers know more than firms about their abilities, the equilibrium set expands to include equilibria where education serves as a signal. Signaling is consistent with both the most able educating, but also with the mediocre educating, and the most able skipping education.
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|Date of creation:||1999|
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