), 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 … feature new auditing patterns and explain empirical observations in labor economics like wage differentials and comparative …

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