Page 427 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes The level of education is just a process of a sharpening or signalling which is implemented in the
proposal employment of the people of both groups by an employer. In fact, the level of education is
implemental as the indication to measure the productivity of the worker of the both groups.
According to Spence, the balance is in the form of available market data. The signalling balance is
described as follows on the basis of above mentioned market data.
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Suppose that the employer decides that the men having below Y level of education is related to group-I
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and the men having Y and above level of education is related to group-II. The level of education Y is
the benchmark by the employer.
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For the cost of education (c = y) and wage schedule w (y) is given, for jobseeker man, the education
is favourable selection, the value y is level of education on which the proposed wage and the cost of
education is in maximum difference.
To decide this that should receive the degree of college, the job seeker compares the cost of education
and its return (or profit). The cost of taking degree is 50,000 = ( 100,000 – ` 50,000). The deference of
proposed wage of two groups by the employer is (w – w = 100,000 – 50,000. The cost of education
2 1
is C = y = 60,000 for group-I and C = y/2 = 30,000 for group-II.
1 2
In group-II, the return of education is higher than the cost of education 50,000 > 30,000. So, In this
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group, the all job seekers will get the horizontal level Y until Y < 1.6.
In group-I, the cost of education is higher than the return 60,000 > 50,000,. In this group all Job
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seekers will get the level Y until Y > 0.8.
This will lead towards equilibrium (balance) until 0.8 and 1.6 is the mean.
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Suppose that a employer decides the level of education Y 1.2 for recruitment because the level of
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education Y (= 0.8) is less group – I job seeker and they are not degree holder, the employer proposel
the 50,000 as wage to this low productivity group. In the group-I, the maximum option is not to take
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education, y = 0 or to take proper education Y, They can’t select Y because the cost of education is more
( 60,000) than their increase in income ( 50,000) if they take degree. So, they will not take any degree.
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In group-II, the job seeker will get the level of education y = 1.2 because their increase in income is more
than the cost of education ( 30,000).
So, the equilibrium (balance) is established in the employment market. When man select the each zero
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level of education (y = 0) in the group-I and in group-II select the level of education y, the level of
education is the indication of the productivity of the men of the both groups.
In fig. 30.2 (A) and (B) describe the signalling of the both groups in sequence. The proposed wage
scheduled is measured on the vertical axis w = 50,000 and w = 1,00,000. The horizontal axis shows
1 2
the level of education Y. C = y , the cost of education is curve for group-I and C = y, the cost of education

1 1 — 2
is curve for group-II. It C and C is given wage schedule for group-I Y = 1.2 encourage the satisfaction
1 2
on being in low level of educated because the C > w . So, the selection of maximum degree is not to
1
1
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receive, which mean, y = 0 which shows in fig. panel (A) for then, In panel (B) for group-II the selection
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of maximum degree shows that the level of education y = 1.2 received and their wage is proposed
1,00,000 instead of w = 50,000.
1
30.3 The Efficient Market Hypothesis
Economist and financial analyst have studied the behaviour of price in the market. It has developed the
fanatic theory of stock market, which has been grouped under the efficient market hypothesis (EMH).

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