Answer to Question #106715 in Economics for Luna Penn

Question

Because of the pandemic on-campus instruction was replaced by online instruction. Assume that the online instruction is less effective than the on-campus instruction but that students were more likely to successfully complete courses because all exams were open-book. Contrast what human capital theory and signaling theory would predict regarding how future earnings will be affected by the way courses were taught.

Answer 1

The key difference between signalling and human capital models is that signalling models allow firms to draw inferences about unobserved characteristics of workers. Those inferences can be based on the schooling or work experience of workers, or on direct measures of some aspects of job performance. So, if the student succesfully studied online at home, then he or she is more perseverant, so may be more succesful in future work and receive higher salary.