ON THE EXISTENCE OF SEPARATING EQUILIBRIA ON JOB MARKETS
Free University of Brussels (European Centre for Advanced Research in Economics and Statistics) (BELGIUM)
About this paper:
Appears in: INTED2011 Proceedings
Publication year: 2011
Conference name: 5th International Technology, Education and Development Conference
Dates: 7-9 March, 2011
Location: Valencia, Spain
Abstract:The paper addresses the well documented European overeducation problem from a theoretical standpoint. Extraoptimal levels of education for the purposes of signaling on the labour market lead to short-term frictional problems of human capital allocation. Consequently, this paper is devoted to establishing an applied theoretical framework on the feasibility of separating equilibria in job markets. I show, using simple game and contract theoretical tools that even in relatively undistorted markets, achieving separation is not always possible. Even though much of the empirical literature from the field points to education being a normal good, I show that this is not necessarily the case. Tuition fee waivers to those in financial need is in most cases not compatible with the separation of workers. Applying a rent extraction problem to optimal candidate screening and migration, I prove that public policy is not aimed at implementing separating equilibria.
Keywords: Job market signaling, human capital allocation, education, separating equilibria, tuition fee waivers, migration, candidate screening.