Optimal Wage Band for Job Matching with Signaling

Abstract

We study an optimal wage band problem in a competitive matching labor market where education signals worker ability. We prove uniqueness of the competitive signaling equilibrium under a general class of utility and profit functions and show that the optimal wage band problem is isomorphic to a simpler optimal ability threshold problem. Using a parametric model, we analyze how wage bands improve welfare relative to no intervention. Our results highlight novel mechanisms driven by asymmetric information, contrasting with existing literature. The framework is broadly applicable to settings where agents invest in costly signals under asymmetric information in competitive matching environments.