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Consider the education signalling model of Spence discussed in class. There are two types of workers, L = 9 < 25 = H, that exist
Consider the education signalling model of Spence discussed in class. There are two types of workers, L = 9 < 25 = H, that exist in equal proportions in a labor market. The labor market is competitive and a firm will receive revenue if they hire a worker of type . A worker who receives wage w and chooses an education level e will receive utility w - 4e^2 if he is of type L, and w-e^2 if they are of type H. Write the constraints that should be satisfied in a separating equilibrium. Illustrate graphically the possible pairs of education levels that satisfy all of these constraints. It is helpful to illustrate them in a graph with axes el^2(horizontal) and eh^2 (vertical)
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