On the Informational Content of Wage Offers

Mehmet Bac

International Economic Review, 2002, vol. 43, issue 1, 173-194

Abstract: This article investigates signaling and screening roles of wage offers in a single-play matching model with two-sided unobservable characteristics. It generates the following predictions as matching equilibrium outcomes: (i) "good" jobs offer premia if "high-quality" worker population is large; (ii) "bad" jobs pay compensating differentials if the proportion of "good" jobs to "low-quality" workers is large; (iii) all firms may offer a pooling wage in markets dominated by "high-quality" workers and firms; or (iv) Gresham's Law prevails: "good" types withdraw if "bad" types dominate the population. The screening/signaling motive thus has the potential of explaining a variety of wage patterns. Copyright 2002 by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Resarch Association

Date: 2002
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