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Job Assignments, Signalling, and Efficiency

  • Michael Waldman

This article analyzes a model in which information about a worker's ability is only directly revealed to the firm employing the worker; other firms, however, use the worker's job assignment as a signal of ability. Three results recur throughout the analysis. First, wage rates tend to be more closely associated with jobs than with ability levels. Second, there is frequently an inefficient assignment of workers to jobs (i.e., even when a firm has complete information about a worker's output). Third, the severity of this inefficiency tends to be negatively correlated with the level of firm-specific human capital in the economy.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 15 (1984)
Issue (Month): 2 (Summer)
Pages: 255-267

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Handle: RePEc:rje:randje:v:15:y:1984:i:summer:p:255-267
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  1. Holmstrom, Bengt, 1981. "Contractual Models of the Labor Market," American Economic Review, American Economic Association, vol. 71(2), pages 308-13, May.
  2. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
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  6. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  7. Stephen Ross & Paul Taubman & Michael L. Wachter, 1981. "Learning by Observing and the Distribution of Wages," NBER Chapters, in: Studies in Labor Markets, pages 359-386 National Bureau of Economic Research, Inc.
  8. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 703-736.
  9. Oliver E. Williamson & Michael L. Wachter & Jeffrey E. Harris, 1975. "Understanding the Employment Relation: The Analysis of Idiosyncratic Exchange," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 250-278, Spring.
  10. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  11. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 619-627.
  12. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  13. Reinhard Selten, 1974. "Reexamination of the Perfectness Concept for Equilibrium Points in Extensive Games," Center for Mathematical Economics Working Papers 023, Center for Mathematical Economics, Bielefeld University.
  14. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  15. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  16. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
  17. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  18. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
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