Suppose workers can be divided into two groups: high and low skill workers. Let y be th number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CA(Y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educatio level y is CB(y)=$65y. Employees will be offered $350 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y < y*. To reduce the cost of education, the government offers a subsidy to the workers. The government will give to each worker $5 for each year of education. In equilibrium, education can be used as a signal of the worker's true type if
Suppose workers can be divided into two groups: high and low skill workers. Let y be th number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CA(Y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educatio level y is CB(y)=$65y. Employees will be offered $350 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y < y*. To reduce the cost of education, the government offers a subsidy to the workers. The government will give to each worker $5 for each year of education. In equilibrium, education can be used as a signal of the worker's true type if
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter11: Labor Markets
Section: Chapter Questions
Problem 17SQ
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Transcribed Image Text:Suppose workers can be divided into two groups: high and low skill workers. Let y be the
number of years of college education of a worker.
For workers in Group A (high skill workers) the cost of attaining an educational level y is
CA(Y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educational
level y is CB(y)=$65y.
Employees will be offered $350 if they have y ≥ y*, where y* is an educational threshold
determined by the employer. They will be offered $50 if they have y < y*.
To reduce the cost of education, the government offers a subsidy to the workers. The
government will give to each worker $5 for each year of education.
In equilibrium, education can be used as a signal of the worker's true type if
✓ > y* z
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