Question

Alternative explanations of wage disparities

Suppose that a labor economist claims that recipients of economics PhDs gain little in terms of acquired productive skills from their graduate studies but that, instead, the degree simply reflects a high level of inherent mathematical ability.

Which one of the following characterizes the labor economist's perspective on the link between education and wages?

A. Human capital
B. The superstar phenomenon
C. Compensating differentials
D. Signaling

Answer 1

Answer:

D. Signaling

Explanation:

According to the signaling theory in education, productivity does not dependent on education, but higher education acts as a "signal" for an individual's greater ability. The labor economist believes that having a PhD in economics reflects a high level of inherent mathematical ability, although it does not change much in acquired productive skills. This view is clearly characterized by signaling.