{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Singaling

# Singaling - 10.24.2007 Midterm II Chapter 5 Minimum wage...

This preview shows pages 1–2. Sign up to view the full content.

10.24.2007 Midterm II - Chapter 5 - Minimum wage - Chapter 6 - Chapter 7 Signaling Continued: - High-ability workers vs. Low-ability workers example o Firms don’t know an individual’s ability, but they do know how many there are of each ability o TABLE I If firms knew the types of ability and who was who, would pay each type their worth Low type would receive some low wage: 000 , 200 = L w High type: 000 , 300 = H w o Since firms don’t know who is who, pay same wage to all (avg. of wages) ) 1 ( 000 , 300 000 , 200 q q w - × + × = For example: if q=60% W=200,000(.6)+300,000(.4)= 240,000 o Low productivity workers like this because they’re overpaid o High productivity workers don’t like this because they’re underpaid o Firms dislike this because they can’t assign only high types to high tasks and only low types to low tasks - Signaling eliminates the problem because it shows what types the workers are o If you have at least a certain level of education then the firm will know you are a high type -

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}