Microeconomics · free preview
Signaling
When education is cheaper for the able, acquiring it separates types even if it teaches nothing, and the separating equilibrium burns real resources to communicate what a cheap sentence could not.
1. The costly sentence
The costly sentence
2. Separating and pooling
Separating and pooling
3. Signals everywhere
Signals everywhere
4. The reply, screening
The reply, screening
5. The separating condition
Employers pay 10 to diploma holders and 6 without. The diploma costs able workers 2 and less able workers 5. What happens in equilibrium?
6. Credential inflation
Why can rising education levels leave workers no better off, a credential inflation?
7. The signal's net gain
A diploma raises wages by 5 thousand dollars, and it costs a particular worker 6 thousand in effort and fees. Compute the net gain from acquiring the diploma, in thousands, and write the number with a minus sign if negative.
8. Separation achieved
The diploma costs able workers 2 and less able workers 5, while employers pay 10 to diploma holders and 6 otherwise. When does a separating equilibrium hold?
9. The credential treadmill
Why can rising education levels leave workers no better off, a credential inflation?
10. The signal's net value
A diploma raises wages by 8 thousand dollars and costs a particular worker 3 thousand to obtain. Compute her net gain from signaling in thousands, and write the number.
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