Saving Spence from Destroying His Own Signaling Theory

Abstract

This paper rescues Spence from destroying his own theory: his conclusion of (workers preferring) no signaling. This paper proves that Spence’s theory is nothing but a labor supply one. As such worker will increase labor and schooling quantity when wage rate is higher, not cost. This paper proves that signaling helps widen the wage gap between efficient and inefficient workers, but advocates against such discrimination. This paper also corrects Spence’s bad assumption: his wrong perception about cost.