Statistical-Based Insights in Spence’s Theory of Honest Signaling

Abstract

Since Michael Spence revealed the secrets of (dis)honest signalling on labour market, an increasing body of literature in various fields struggled to find the best way to solve the game under imperfect information that describes the interaction between the employer and the employee. Despite the value of the signal originally acknowledged by Spence, the university degree, a recent trend of increasing in unemployment rate among graduates of higher education suggests that between higher education and labour market may be a less significant connection than universities claim, potentially resulting in a decreasing power of the signal consisting of an university diploma. The aim of this study is to provide statistical evidence of the connection between higher education and labour market in Romania and to discuss some of the factors that potentially cause young people to choose a particular study program. Based on statistical analysis, we investigate the gap between the number of graduates in Law and the labour market capacity in the field, and draw conclusions regarding the accuracy of the mechanism that leads to equilibrium between supply and demand on the university market.

Keywords

• signaling theory
• law path
• labour market