' productivities from their education choices. In reality, firms also use sophisticated pre-employment auditing to learn workers …

feature new auditing patterns and explain empirical observations in labor economics like wage differentials and comparative …), and firms have the option of auditing to learn workers' productivities. Audits are costly and non-contractible. We … characterize the trade-offs between signaling by workers and costly auditing by firms. Auditing is always associated with (partial …