Job market signaling and screening: An experimental comparison

Abstract

We analyze the Spence education game in experimental markets. We compare a signaling and a screening variant, and we analyze the e¤ect of increasing the number of employers from two to three. In all treatments, there is a strong tendency to separate. More e¢cient workers invest more often and employers bid higher for workers who have invested. More e¢cient workers also earn higher wages. Employers’ pro…ts are usually not di¤erent from zero. Increased competition leads to higher wages only in the signaling sessions. We find that workers in the screening sessions invest more often and earn higher wages when there are two employers.