ECON 151 Lecture Notes - Lecture 21: Opportunity Cost, Marginal Product
11 Nov 2020
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Document Summary
Revealed information or signals (education, gender ) Non-alterable signals ( indices ) : color of skin, gender age Alterable signals : attitude, years of education. Based on past experience, employers determine the productivity (and wages) distribution conditional on signals; After assessing the true productivity, employers update. Employees have different innate level of productivity. Education produces a return: better wages (like in hkt) Costs are different for low and high productive workers: Negative correlation between individual productivity and signaling cost ; High productivity (clever person) should have low costs (and vice versa) Use tests to make the life of low productivity terrible to eliminate the low productivity workers so that the signal of school is clever students. Education must be more costly for low productive workers. Workers are rational: choose their level of education to maximize their return. Try to get the education level that will max your returns in labor market. Perfect info: people get paid at marginal product:
