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Signaling Effects in Job Market, Essay Example

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Essay

Signaling Effects in Job Market- Level of Education of Employees and Productivity

The job market today is highly intricate in structure as an organization can sustain only those employees whose input translates into actual profits in the fiercely competitive world scenario, particularly after the effects of the present economic recession have set in. In order to make best use of the human resources available at hand, an employer must perpetually be aware of the inputs being received from each employee which enable him to develop strategies in advance to meet future requirements. The job market has numerous signalers which can be measured and evaluated in order to interpret and forecast the future trends (Spence, 1973). The information thus obtained can have vital bearings on the overall functioning of any organization. The author has singled out the job market as a typical example of a market scenario where the informational structure predisposes signaling to play a vital role. He believes that the scenario can be further extrapolated to other job and quasi market phenomena (Spence, 1973). Numerous signals which can contribute in the job market include education, job experience, sex, age, ethnicity, etc. The author has tried to establish an informational content on the basis of an interactive structure assigned to various signals in the job market.

Hiring by any organization is an investment in itself as the very basis for it to occur is the need for ensuring productivity, but at the very outset, the employer is not absolutely certain of the fact that this investment will pay or not. He makes a decision on the basis of numerous criteria associated with the prospective employees and allots specific positions to the incumbents within the organizational hierarchy, without being sure of the correctness of the decision and its future impact on the expected  productivity sequel. The criteria on the basis of which a prospective employee is selected can either be   immutably fixed (indices) or alterable (signals) (Spence, 1973). An index is an unalterable characteristic of a worker which can be exemplified by age, gender, sex or ethnic identity. A signal, on the other hand, is that trait or characteristic which can be manipulated, such as education. It is very difficult for an employer to access the ability of future employees in absence of well identified criteria for selection and similarly a potential good worker cannot convey his ability or inherent talent to the employer if no definite basis for explaining his qualities are available. A potential employee can therefore send a signal to the employer by highlighting his educational achievements and knowledge which can serve as a potential basis for better performance after employment resulting in increased productivity for the organization. The employer can use such signals to hypothesize a basis for selection of employees though it is not a definite marker for translating into better results in an actual scenario which surfaces only after actual work. The wage structure and rate is fixed by an employer after  thorough examination of such signals which allow him to classify the employees on the basis of their expected performance. The informational gap between the employer and the employee can therefore be plugged by removing asymmetry between the two parties by making use of signals.

Educational qualification is a hallmark for hiring in the job market section as it serves as the basic foundation on which the employee structure is built upon. The hierarchy in an organizational setup is based on the level of education of the workers with the most qualified occupying the upper echelons and the wage structure is also accordingly favorable for them. There is a gradual lowering of this structure according to qualification which is not necessarily correct. However the workers can be classified into two categories based on their willingness or unwillingness to attain higher education in order to increase productivity within the organization. The situation is further complicated due to the differences in ability, attitude and characteristics at a personal level in individual employees which usually escape employer’s notice. In order to attain an equilibrium in wage structure according to these characteristics, they should be constantly evaluated to make adequate monetary changes in form of remuneration as and when required (Chang, 2008). This translates into workers with higher abilities endeavoring to obtain higher education as compared to less capable contemporaries resulting  in a further increase in their wages. In the model proposed by Spence, 1974, education thus becomes an instrument which reveals the unobservable characteristics of the employee to the employer. An employee demonstrates his ability to achieve higher productivity by expressing desire for higher education which is not necessarily free of expenditure for the employer which has been termed as signaling costs (Spence, 1974). As far as the employee is concerned he is expressing the desire for education only due to the incentive of a higher wage structure that it offers and not as an intentional effort of signaling. It is the the employer’s duty to interpret these signals and initiate measures aimed at maximizing the difference between offered wages and signaling costs (Spence, 1974). Distinguishing one applicant from the other on the basis of educational criteria involves a prerequisite of a negative correlation between the costs of signaling and the productive capability of respective employees. The employee’s expected rise in wages induced by the inference of signals by the employers must always be greater than the cost of transmitting those signals i.e. the signals should be affordable for the employee. An employee who intends to enhance the productivity within the organization after enhancing his qualifications by additional educational pursuits is actually doing much more as the costs involved in his education will be much lower as compared to a less qualified or unwilling worker.  The costs are not necessarily monetary in nature as they can be related to time costs as well as psychic costs which have a higher impact on the overall functional processes within the employing organization which sets the motion in its future strategic tone and recourse.

The present trends in education and the launch and widespread impact of information and communication technology has redefined educational criteria which increase the complexity of signaling as well as their interpretation by the employer. Newer technologies have emerged which have imparted more role to automation and decreased use of human power alone. Wage structures have accordingly shifted in a direction which is in coherence with these changes. The job market has accordingly shifted its focus on employing workers who are capable of understanding and running the infrastructures incorporating the latest technological innovations. Previously what was considered as high qualification is no longer pertinent in the new scenario. Up-gradation of qualifications in tune with the latest technologies has become the watchword. Firms and organizations have therefore been forced to look in divergent transnational locations for recruiting the best talents according to their individual needs. Elimination of staff has already been a prime activity with most organizations due to the inability of sustaining high costs due to the present recessionary trends in the world market. The necessity therefore arises for interpreting the most pertinent signals for appropriate application of strategies to enhance productivity. The signaling equilibrium has therefore been subjected to tremendous stress in recent times.

Using Spence’s signaling model, the impact of enhancing education in information technology (ICT)  in one group of workers (Type H) who are desirous of doing so can be compared to another group (Type L) who are not particularly interested or do not possess the aptitude and capability to learn the latest nuances of information and communication technology(Adapted from Autor, 2004).

Assumptions

  1. People posses the ability or not of acquiring ICT education: H (high ability), L (low ability).
  2. H group are inherently more productive than the L group.
  3. Although they are aware of their individual abilities, the fact is not in the knowledge of potential employers.
  4. Education does not affect ability/productivity.
  5. High ability people have lower cost of attending ICT education program than others.

References

Autor, D. (2004). Education, Human Capital, and Job Market Signaling, online article accessed Dec. 26, 2009 at: http://ocw.mit.edu/NR/rdonlyres/Economics/14-03Fall-2004/6BDB8E44-B5B4-4A45-8575-39BEDBE0463C/0/lecture16.pdf

Chang, I. R. (2008) Senior Honor Thesis: A Survey of the Signaling Theory, accessed online Dec. 25, 2009 at: http://emlab.berkeley.edu/econ/ugrad/theses/ihsiang_robert_chang_thesis.pdf

Spence, M. (1973) Job Market signaling, The Quarterly Journal of Economics, Vol. 87, No. 3, pp. 355-374

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