According to Michael Spence (1973), which among the following assumptions of signaling theory are true?
A. Individuals differ in productivity
B. Productivity is fully person specific
C. Individuals do not know their productivity, but their employers do.
D. Schooling levels can be observed without incurring a cost
E. The productivity of individual is affected by schooling
Choose the most appropriate answer from the options given below:

Correct option is C

The assumptions A, B & D Only are true according to Michael Spence's signaling theory. Individuals differ in productivity, productivity is fully person-specific, and schooling levels can be observed without incurring a cost.
Information Booster:
1. Signaling Theory: Proposed by Michael Spence, suggests that individuals send signals about their abilities to potential employers.
2. Productivity Differences: Individuals have varying levels of productivity.
3. Person-Specific Productivity: Productivity is inherent to individuals and not easily transferable.
4. Observable Schooling Levels: Education and qualifications can be seen and evaluated by employers.
5. Signal: Education acts as a signal to employers about a candidate's potential productivity.
6. Cost of Education: Education has costs, but observing its attainment does not.
Additional Information:
· Signaling: Important in labor markets where employers cannot directly observe a candidate's productivity.
· Education as a Signal: Helps employers differentiate between high and low productivity individuals.
· Assumptions: Provide a framework for understanding how signals (like education) function in the job market.
Key Points:
· Signaling theory explains how education acts as a signal of productivity to employers.
· Understanding the assumptions of signaling theory helps in analyzing labor market dynamics.
· Education's role as a signal is crucial in hiring and employment processes.