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Careers in firms: estimating a model of learning, job assignment, and human capital aquisition

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  • Elena Pastorino
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    Abstract

    This paper develops and structurally estimates an equilibrium model of the labor market that integrates learning, job assignment, and human capital acquisition to account for the main patterns of job and wage mobility characteristic of careers in firms. A key innovation is the modeling of firms’ incentives to experiment that arise from the ability of firms, through job assignment, to affect the rate at which they acquire information about workers. The resulting trade-off between output and information implies that a firm’s retention and job assignment policy solves an experimentation problem: a so-called multi-armed bandit with dependent arms. The model is estimated using longitudinal administrative data from one U.S. firm in a service industry (the same data used by Baker, Gibbs, and Holmström (1994a,b)) and fits the data remarkably well. My estimates indicate that learning during employment accounts for a significant fraction of measured wage growth on the job, whereas experimentation through job assignment primarily contributes to explaining the patterns of job mobility within the firm. Since learning is gradual, however, persistent uncertainty about workers’ abilities is responsible for a substantial compression of wage growth with tenure.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 469.

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    Date of creation: 2012
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    Handle: RePEc:fip:fedmsr:469

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    Keywords: Wages;

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    1. Robert M. Sauer, 1998. "Job Mobility and the Market for Lawyers," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 147-171, February.
    2. Christian Belzil & Michael Bognanno, 2004. "The Promotion Dynamics of American Executives," CIRANO Working Papers 2004s-05, CIRANO.
    3. Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
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