Job market signaling equilibria with unobserved cost functions and higher education reforms

In this paper we argue that if firms cannot observe the individuals' cost of acquiring education, inefficient pooling equilibria consistent with forward induction may characterize the job market signaling game. Continuous changes in the educational system may affect agents' beliefs generating pooling equilibria consistent with forward reasoning. The welfare comparisons between separating and pooling equilibria should prevent governments to implement too often policies that deeply modify the educational system without a serious long run perspective. The role that European Union' directives may have in addressing long run reforms could be fundamental in order to modernize higher education and to avoid the effects of reforms based on ungrounded political conveniences.