Question

Consider the role of signaling and investment in training/education in job markets. Research has shown that employers often “over-ask” on required qualifications for a position, and further find that men are more likely to apply to a job even when they do not meet minimum qualifications than women. Discuss how persistent labor market discrimination may be the result of both “signaling” and “bluffing”.

Answer 1

Signaling in labor market, as the name suggests, is nothing but the conveying of credible information about a potential employee to the employer. The common signaling technique is through educational qualifications which set out a signal on the capabilities of the person seeking the job. The potential employees here send out a 'signal' of how they are agile for this job given their education credentials. So, why is signalling a major factor in the labor market discrimination?

A firm obviously needs talented and skilled workers who can perform the tasks in the most efficient way possible. If you're a job seeker, you know about your ability. But the employer doesn't know. Therefore this asymmetry of information puts the onus on signalling to enable the employer to know that you are an able person for the job position the firm's offering. Although, it's not mandatory to have great education credentials to perform a job efficiently, the employees these days increasingly signal their productivity by acquiring more education credentials. This obviously puts pressure on those job seekers who have great skill set but not that much of education credentials due to financial circumstances,etc, and they ultimately end up not getting a job because of the weak signalling. Therefore there is a discrimination in the labor market because of this and has been persistent because of this trend carrying on till now.

Bluffing in labor market is nothing but the clever deception of skill attributes pertaining to one person. Put it in simple, the job seeker cheats and lies at the same time regarding his skills. One needs to be a really good orator to plant the deception in this case and sell it off to the employer. This is done by job seekers intentionally to grab the job. An asymmetry of information occurs just like the previous case. What happens in this scenario is that people with genuine skill set who won't deceive the employer are at a loss. Good orators ensure that they have deceived the employers well enough that even a guy with the real skill set does not deem fit for the role. Therefore, a labor market discrimination happens in this case too. There is always a heavy competition for jobs, so it's practically impossible to curb bluffing. Hence this factor causes the persistence in labor market discrimination.

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