When relatively few workers have high ability,
A) they will settle for the average wage.
B) they will want to signal their ability.
C) the premium for high ability is less than when most workers have high ability.
D) they do not need to signal their ability.

Question

Quizplus · Accepted Answer

When relatively few workers have high ability, they will want to differentiate themselves from others and signal their ability to employers, as this increases their chances of being hired and also paid a higher wage. This phenomenon is known as the signaling theory of labor market.

When Relatively Few Workers Have High Ability