Perfectly separating equilibrium in this labor market
Course:- Business Economics
Reference No.:- EM13795694

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In the typical signalling model, it is assumed that the costs of acquiring an education are higher for low-ability than for high-ability workers. Suppose that the government steps in and subsidizes low-ability workers for the higher costs they incur in getting an education (such as giving everyone who has been in school for 12 years a high school diploma, regardless of the person's performance in the classroom). Discuss what happens to the signalling value of a person's education. Can there be a perfectly separating equilibrium in this labor market?

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