An economy has two types of jobs, Good and Bad, and two types of workers, Qualif

Question

An economy has two types of jobs, Good and Bad, and two types of workers, Qualified and Unqualified. The population consists of 40% Qualified and 60% Unqualified. In a Bad job, either type of worker produces 45 units of output. In a Good job, a qualified worker produces 120 units, and an unqualified worker produces 0. There is enough demand for workers that for each type of job, companies must pay what they expect the appointee to produce. Companies must hire each worker without observing his type and pay him before knowing his actual output. But qualified workers can signal their qualification by getting educated. For a qualified worker, the cost of getting educated is 30, whereas for an unqualified worker, it is 70. These costs are measured in the same units as output. Is there a separating equilibrium? If yes, find out; if no, explain. Now, suppose the signal is unavailable. Will a company fill its Good job or Bad job? What will be a worker's wage? Continuing b. Will qualified workers gain or lose? Will unqualified workers gain or lose? Explain.

Explanation / Answer

a. there is no seperate equilibrium exist in the given issue

b. then the job will become a bad job and the wages will collapse or come down

c. workers will get loss only

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