By Gavin Moodie
Economists developed the concept of signalling and screening to deal with problems such as the market for lemons – cars that turn out to be clunkers rather than high quality cars (peaches).
In economics signalling is what sellers do to indicate that their product or service is of high quality, whereas screening is what buyers do to ensure that they don’t end up with a lemon. We have used the concept of signalling and screening to refer to different roles of qualifications in the labour market.
Sometimes employers use qualifications to signal that graduates have specific knowledge and skills needed for a job they want to fill. Examples are nursing diplomas, engineering degrees and welding certificates. Other times employers use qualifications to screen applicants for general intellectual ability or skills. Examples are high school diplomas and diplomas and degrees in general arts and sciences.
A qualification can be both a signal and a screen. Common examples are law degrees and qualifications in commerce and mathematics. Law firms use a law degree as a signal when hiring 1st year associates but many other employers use law and often other degrees to screen for graduates with high intellectual ability. Some employers use commerce and mathematics qualifications to signal a specific ability, but many employers use these qualifications to screen for applicants with general business or quantitative skills.
We have been annoying economists by using ‘their’ terms ‘signalling’ and ‘screening’ but not carefully defining their non economic meaning we intend. We have also failed to convince some colleagues in postsecondary education who observe that some employers use qualifications concurrently as both a screen and a signal, for example, insisting on recruiting their actuarial graduates from Lady Bracknell University rather than Eliza Doolittle Academy.
So soon I plan to start developing our analysis of employers’ use of qualifications as signals and screens.
Gavin