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Efficient Learning, Job Turnover and Wage Dispersion

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  • Fei Li

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    (Department of Economics, University of Pennsylvania)

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    Abstract

    This paper studies the aggregate consequences of individual learning in the labor market. Specifically, I examine this issue in a model of directed search on the job. Once matched, a firm-worker pair gradually learns the match-specific quality, taking the history of realized production as signals. Heterogeneity in beliefs about the match quality and in the job search behavior of workers naturally occurs, resulting from a variety of individual histories. I describe the efficient learning and searching strategy and implement the efficient allocations through a market mechanism in which the labor contract depends deterministically on tenure. Consistent with the stylized facts, the model successfully predicts the tenure effect on both the job separation rate and the probability of on-the-job search, and when search frictions are small, the model generates a dispersed wage distribution with a at tail, along the lines of observations.

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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 11-040.

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    Length: 44 pages
    Date of creation: 28 Nov 2011
    Date of revision:
    Handle: RePEc:pen:papers:11-040

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    Related research

    Keywords: Learning; Directed Search; Block Recursive Equilibrium; Turnover; Wage Dispersion;

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    References

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    1. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    2. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle," Working Papers tecipa-327, University of Toronto, Department of Economics.
    3. Francisco M. Gonzalez & Shouyong Shi, 2008. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-328, University of Toronto, Department of Economics.
    4. Manolis Galenianos & Philipp Kircher, 2005. "Directed Search with Multiple Job Applications," PIER Working Paper Archive 05-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    6. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
    7. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
    8. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-68, August.
    9. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
    10. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
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