Labor Market Signaling

Labor market signaling refers to the idea that individuals use certain credentials or characteristics as signals to potential employers about their abilities and productivity. For example, a college degree can signal to employers that a candidate possesses certain skills, dedication, and intelligence. This signaling helps employers make hiring decisions, especially when they cannot directly observe a candidate’s capabilities. In the context of occupational choice, individuals may pursue education or training not only for the skills themselves but also to enhance their marketability and improve job prospects by sending strong signals to employers.