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

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 Holmstrm (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.