A Theory of Monitoring and Internal Labor Markets
AbstractWe analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.
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Date of creation: Nov 2011
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Other versions of this item:
- Kevin Lang & Gautam Bose, 2011. "A Theory of Monitoring and Internal Labor Markets," Boston University - Department of Economics - Working Papers Series WP2011-020, Boston University - Department of Economics.
- Gautam Bose & Kevin Lang, 2011. "A Theory of Monitoring and Internal Labor Markets," Discussion Papers 2012-06, School of Economics, The University of New South Wales.
- J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-BEC-2011-12-13 (Business Economics)
- NEP-CTA-2011-12-13 (Contract Theory & Applications)
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