Problem
In the typical signaling model, it is assumed that the costs of acquiring an education are higher for low-ability than for high-ability workers. Suppose that the government steps in and subsidizes low-ability workers for the higher costs they incur in getting an education, so that everyone now faces the same costs for an additional year of schooling. Discuss what happens to the signaling value of a person's education. Can there be a perfectly separating equilibrium in this labor market?