Question

Economists often speak of the value of “signaling” (for example, completing a degree or training course). Should we treat union membership as a form of signaling? Why or why not?

Answer 1

Asymmetric information in the market leads to various methods through which economic agents seek to judge true value. For example, when recruiters are encountered with problems of identifying right candidates for job, they use degree to deduce about skills and capabilities of applicants.

Likewise, union membership can be seen as form of signaling. Union would pressurize management to increase wages and other perks. Hence, formation of union gives signal about possible pressure on management or employers.