Signaling theory was originally developed by Spence (1974) to explain decision-making under conditions of information asymmetry, where one party possesses private information that is not directly observable by another. In its foundational application to labor markets, signaling theory addresses the problem faced by employers who must assess applicants’ unobservable productivity at the time of hiring. Because true ability cannot be directly observed, employers rely on observable indicators, such as educational credentials, work experience, or other attributes. These observable indicators function as signals of underlying quality.

In Spence’s framework, education does not necessarily increase productivity per se; rather, it operates as a signal that allows more capable individuals to credibly differentiate themselves from less capable ones. The effectiveness of a signal depends on its credibility, which is typically ensured by differential costs: a valid signal is one that is more costly for low-quality individuals to imitate than for high-quality individuals. Under these conditions, signals help reduce information asymmetry and facilitate more efficient market outcomes.

Although signaling theory was initially formulated in the context of labor economics, it has since been widely adopted in marketing and communication research. In marketing contexts, a signal can be defined as an observable and controllable cue, extrinsic to the core product or offer, that allows receivers to infer unobservable attributes such as quality, reliability, or intent (Kirmani & Rao, 2000). Common marketing signals include price, advertising intensity, brand reputation, guarantees, or endorsements. Importantly, signals influence perceptions only insofar as they are perceived as informative and trustworthy.

In recruitment contexts, signaling theory suggests that job seekers rely on recruitment-related cues to infer organizational characteristics that are otherwise difficult to verify prior to application (Pfiffelmann & Pfeuffer, 2022). Recruitment advertisements thus function not only as informational tools but also as signals conveying how organizations value and address potential candidates. For instance, personalized recruitment ads may be interpreted as signals of consideration or applicant-centered practices. Empirical research shows that such signals can enhance organizational attractiveness and subsequent behavioral intentions, particularly when individuals exhibit low involvement with the recruitment message, as they are more likely to rely on heuristic cues rather than systematic processing.

References

Kirmani, A., & Rao, A. R. (2000). No pain, no gain: A critical review of the literature on signaling unobservable product quality. Journal of Marketing, 64(2), 66–79.

Pfiffelmann, J., & Pfeuffer, A. (2022). Understanding personalized recruitment ads’ effectiveness: The role of personalization type and message involvement. Journal of Interactive Advertising, 22(3), 311–326.

Spence, A. M. 1974. Market Signaling: Information Transfer in Hiring and Related Screening Processes. Cambridge, MA: Harvard Univ. Press