TY  - JOUR
AU  - Ma,Ching-to Albert
AU  - Weiss,Andrew M.
TI  - A Signaling Theory of Unemployment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3565
PY  - 1990
Y2  - December 1990
UR  - http://www.nber.org/papers/w3565
L1  - http://www.nber.org/papers/w3565.pdf
N1  - Author contact info:
Andrew Weiss
Weiss Asset Management
29 Commonwealth Avenue, 10th Floor
Boston, MA 02116
Tel: 617-778-7780
Fax: 617-778-7781
E-Mail: aweiss@weissasset.com
AB  - 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.
ER  -