Education in a " Job Ladder " Model and the Fairness - in - Hiring Rule

Education in a "Job Ladder" Model and the "Fairness-in-Hiring" Rule Jagdish N. Bhagwati and T. N. Srinivasan Education turns a person into a different 'kind of labor. Any economic analysis of education therefore must be based on a theory as to what this difference consists in; it must also presuppose a theory as to how the market for this kind of labor functions. This paper proposes and analyzes, in general equilibrium, a theory of education that is novel on both dimensions. As to what education does to an individual, two alternatives are considered: (i) it provides the needed skills to become employed in better-paying occupations; and (ii) education has no social productivity but is only an instrument for job competition in a world where employers feel that it is "fair" to hire an educated worker in preference to an uneducated one even though they are equally productive. As for the market for educated labor, we consider a "Job Ladder" model in which wages are sticky and postulate that , if the educated labor force exceeds the jobs for which it is qualified, then the excess supply filters down to the "next-best" job in the "Job Ladder". The job ladder model is analyzed, therefore, with and without the "fairnessin-hiring" rule. Each, in turn, is investigated for its equilibrium, efficiency, and distributional properties vis-a-vis flexible wage models, and the differences for both the job ladder and the flexible wage models from socially-optimal solutions are also analyzed. Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium Member Libraries http://www.archive.org/details/educationinjoblaOObhag