Job Signalling and Welfare Improving Minimum Wage Laws

Edwin G West

Economic Inquiry, 1988, vol. 26, issue 3, 525-32

Abstract: Job market signaling (via education) models assume workers know the ir marginal productivities before accepting jobs, but employers do not. Yet modern theories of the firm predict positive cross partial derivatives among factors. Factor owners, thus, cannot know their marginal products before interacting with others. Any empirical claim that education is being used for socially wasteful signaling is therefore suspect. Exceptional, but underpaid, workers can, in any case, shirk down to the common level instead of obtaining education. The recent finding that minimum wage laws could curb wasteful signaling might thus be a solution in search of a problem. Copyright 1988 by Oxford University Press.

Date: 1988
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