Question 6. (20 points) An economy has two types of jobs, Good and Bad, and two types of workers, Qualified and Unqualif

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Question 6 20 Points An Economy Has Two Types Of Jobs Good And Bad And Two Types Of Workers Qualified And Unqualif 1 (78.02 KiB) Viewed 10 times

Question 6. (20 points) An economy has two types of jobs, Good and Bad, and two types of workers, Qualified and Unqualified. The population consists of 60% Qualified and 40% Unqualified workers. In a Bad job, either type of worker produces $10 of output. In a Good job, a Qualified worker produces a value of $100 and an Unqualified worker produces $0. For each type of job, companies pay the full value of what they expect the worker 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 to level n is n²/2 dollars whereas for an Uqualified worker it is n². a) Explain how education can signal being a Qualified worker. b) What is the minimum level of n that will achieve separation? c) Now suppose the signal is made unavailable. Which kinds of jobs will be filled by which kinds of workers, and at what wages? Who will win and who will lose from this change?