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Signalling in the labour market is a key concept in labour economics that arises from the problem of asymmetric information between employers and workers. Employers often do not have complete information about the productivity or ability of potential employees before hiring them. This information gap creates uncertainty in the hiring process. Signalling provides a way for workers to communicate their unobservable qualities to employers through observable actions or characteristics that are costly to acquire and therefore credible. Michael Spence’s job market signalling model explains this mechanism in detail. In this model, workers know their own productivity levels, but employers cannot observe it directly. To distinguish themselves, high-productivity workers send signals that credibly communicate their ability. A signal must satisfy two conditions: it ____ _______ _________ __________ __________ ________.
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