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Mediocrity in Talent Markets

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Author Info
Marko Tervio (University of California, Berkeley)

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Abstract

A model of a labor market is proposed where the level of individual talent can only be learned on the job and where job positions are scarce. Inability to commit to long-term contracts leaves firms with insufficient incentives to hire novices, causing them to bid excessively for the pool of revealed talent instead. This causes the market to be plagued with too many mediocre workers and inefficiently low output levels, while simultaneously raising the wages for high talents. This problem is most severe where information about talent is initially very imprecise but revealed relatively quickly on the job. I argue that high incomes in professions such as entertainment, team sports, and entrepreneurship, may at least partly be explained by the nature of the talent revelation process in those markets. I suggest historical episodes that could be used to identify the inefficiency and the excessive talent rents predicted by the model.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number 1098.

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Date of creation: 06 Nov 2003
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Handle: RePEc:cdl:indrel:1098

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Keywords: workforce productivity;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ken Hendricks & Alan Sorensen, 2006. "Information Spillovers in the Market for Recorded Music," NBER Working Papers 12263, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Paul Oyer, 2006. "The Macro-Foundations of Microeconomics: Initial Labor Market Conditions and Long-Term Outcomes for Economists," NBER Working Papers 12157, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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