There are two major theories of why education leads to higher earnings (though they are not mutually exclusive): signaling and the building of labor market issues. If the signaling theory is dominant, how would the average wage for college graduates change if everyone received a college degree?

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The signaling theory suggests that education serves as a signal to employers of an individual's productivity and work ethic, rather than actually increasing their productivity. If everyone received a college degree, it would be more difficult for employers to differentiate between workers and the value of a college degree as a signal would decrease, leading to a decrease in the average wage for college graduates.

There Are Two Major Theories of Why Education Leads to Higher