Question

6. Explain how human capital theory and signaling theory would answer each of the questions below. You should provide 2 distinct answers for each question. a) What happens to aggregate productivity in a country if more people go to college? (4 points) b) Will employers be willing to pay more for college educated workers vs non-educated workers? (4 points)

Answer 1

Ans

1 according to human capital theory productivity would rise since more college education leads to more human capital and better skills

According to signal theory it may actually fall becsuse when everyone has college education college education may not serve as sign of efficiency. But this need not be case since grades of efficient workers will still be better.In that case it will have no effect on productivity. If more college education is because of the fact that college education is cheap it may even raise productivity in the sense that even poor but efficient workers will now be able to signal their efficiency through higher grades in college education.

2 Not necessarily in human capital model if they are performing same type of work. Here employers are not fully aware about skill levels of workers

Yes in case of signal model because higher productivity is reflected by higher education levels according to this theory