Job Market Signaling and Employer Learning

Abstract:     
This paper extends the job market signaling model of Spence (1973) by allowing firms to learn the ability of their employees over time. Contrary to the model without employer learning, we find that the Intuitive Criterion does not always select a unique separating equilibrium. When the Intuitive Criterion bites and information is purely asymmetric, the separating level of education does not depend on the observability of workers' types. On the other hand, when workers are also uncertain about their productivity, the separating level of education is ambiguously related to the speed of employer learning.

Number of Pages in PDF File: 31

Keywords: employer learning, education, job markets, signaling, intuitive criterion

JEL Classification: I20, C70, D82, D83

working papers series