The Influence of the Higher Education Universalization on the Signaling of Diplomas: Theoretical Analysis by Using a Game Model

Author: Chao-Pin Ko(Department of Hotel and Restaurant Management, Aletheia University)

Vol.&No.：Vol. 54, No. 2
Date：June 2009
Pages：107-133
DOI：10.3966/2073753X2009065402005

Abstract：

In this paper, we investigate how the higher education universalization affects the choice of the first-time job seeker and the employer through the signaling function of diploma. Because of the asymmetric information, the employer can’t understand the first-time job seeker’s ability absolutely before making a contract. Therefore, education is not only a factor to increase labor productivity, but also a signal to communicate the information of worker’s ability to the employer. By building a game model and using parameter simulation, we find that the job seeker with higher ability will overeducate to make the employer can separate higher ability first-time job seekers from lower ability ones when the expansion of higher education makes it easy to acquire a diploma. Once overabundant diploma due to the expansion of higher education universalization makes the employer can not discriminate higher ability candidates from lower ability ones, the employer reduces the salary of social freshman. Such phenomenon induces the equilibrium away from the Pareto optimality and decreases the total social production.

Keywords：asymmetric information, signaling, higher education, educational universalization

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