@techreport{NBERw3565,
 title = "A Signaling Theory of Unemployment",
 author = "Ching-to Albert Ma and Andrew M. Weiss",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "3565",
 year = "1990",
 month = "December",
 URL = "http://www.nber.org/papers/w3565",
 abstract = {This paper presents a signaling explanation for unemployment. The basic idea is that employment at an unskilled job may be regarded as a bad signal. Therefore, good workers who are more likely to qualify for employment at a skilled job in the future are better off being unemployed than accepting an unskilled job. We present conditions under which all equilibria satisfying the Cho-Kreps intuitive criterion involve unemployment. However, there always exist budget balancing wage subsidies and taxes that eliminate unemployment. Also, for any unemployment equilibrium, either there always exists a set of Pareto improving wage taxes and subsidies, or we give conditions under which there exists a set of Pareto improving wage taxes and subsidies.},
}