Suppose Half of Workers Have High Productivity and Half of Workers

Multiple Choice

Suppose half of workers have high productivity and half of workers have low productivity. High-productivity workers are valued at $100,000 a year and low-productivity workers are valued at $40,000 a year. Because of asymmetric information, employers cannot tell them apart, so all workers are paid according to the average economy-wide value of productivity. If high-productivity workers found a method to signal their productivity to employers, high-productivity pay would _____ by $30,000, and low-productivity pay would _____.

A) increase; increase by $30,000
B) increase; decrease by $30,000
C) decrease; increase by $30,000
D) increase; remain unchanged