In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device,government can increase total social welfare by
A) subsidizing school for low-skill workers.
B) subsidizing school for all workers.
C) eliminating schooling, i.e., banning wasteful signaling.
D) subsidizing school for high-skill workers.

Question

Quizplus · Accepted Answer

Eliminating schooling as a signaling device can increase social welfare by removing the wasteful expenditure on education that does not enhance productivity but merely serves to differentiate worker types.

In a Labor-Market Separating Equilibrium with High-Skill and Low-Skill Workers