Thursday, 24 April 2008
>> add-a-knowledge-time: the Sheepskin Effect
i know i haven been helping everyone to gain some knowledge for a long time already, so here i am to share sth with you, sth i learnt from my econ readings few days ago.
The Sheepskin effect:also known as signalling in economics,
signalling is the idea that one party (termed the
agent) conveys some meaningful information about itself to another party (the
principal). For example, in
Michael Spence's job-market signalling model, employees signal the level of their skills to employers by acquiring a certain degree of education.
Generally, employers are willing to pay higher wages to employ better workers. Since employers are not always able to observe potential employees skills and productivity, they use education as a way to estimate the abilities of potential employees.
Spence discovered that even if education did not contribute anything to an employee's productivity, good employees would still buy more education in order to s
ignal their higher productivity to employers. This is also called sheepskin effect for the reason that
degrees used to be written on sheepskin.(Economists sometimes call this the
signalling hypothesis in education, often cited as a reason why government should not subsidize higher education for workers: more education allows workers to be paid a higher wage but does not make society more productive.) Bad workers, for their part, would accept a lower wage rather than pay the higher price (for them) of getting more education. And employers, seeing that the education signal really is correlated to employee productivity, would condition their wages on the signal, offering better wages to those who had invested more in the signal. This is called a
signalling equilibrium.
before i went to find out how the name "sheepskin effect" came abt, i was still thinking maybe its becos ppl who are actually not very good have to study more so that the degree acts like a sheepskin on them, so that they can become a "sheep" to bluff people that they can be "sold" for a higher price haha!!i think i was way too creative liao.
12:00:00 am;
