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Counteroffers and Efficiency in Labor Markets with Asymmetric Information

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  • Limor Golan

    (Carnegie Mellon University)

Abstract

This article considers the effect of offer matching on labor market outcomes when the current employer has better information about his worker's productivity than potential employers. Previous research found that when current employers have better information than potential employers, the latter use job assignment to infer an employed worker's qualifications. As a result, assignment of workers to jobs is inefficient. I find that when current employers can match outside offers, the equilibrium outcome may be efficient. I analyze the effect of the asymmetric information on investment in human capital made by employers and workers, and find these investment levels to be first best.

Suggested Citation

  • Limor Golan, 2005. "Counteroffers and Efficiency in Labor Markets with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 373-393, April.
  • Handle: RePEc:ucp:jlabec:v:23:y:2005:i:2:p:373-372
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:ecinqu:v:55:y:2017:i:1:p:223-236 is not listed on IDEAS
    2. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
    3. Li, Jin, 2013. "Job mobility, wage dispersion, and technological change: An asymmetric information perspective," European Economic Review, Elsevier, vol. 60(C), pages 105-126.
    4. Junichiro Ishida, 2012. "Promotion without Commitment: Signaling, Time Inconsistency and Decentralization of the Firm," ISER Discussion Paper 0843, Institute of Social and Economic Research, Osaka University.
    5. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.
    6. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    7. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    8. Kampkötter, Patrick & Sliwka, Dirk, 2014. "Wage premia for newly hired employees," Labour Economics, Elsevier, vol. 31(C), pages 45-60.
    9. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    10. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    11. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    12. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    13. Timothy J. Perri, 2005. "Raiding and Signaling in the Academic Labor Market," Working Papers 05-21, Department of Economics, Appalachian State University.
    14. Kevin Lang & Russell Weinstein, 2016. "A Test of Adverse Selection in the Market for Experienced Workers," NBER Working Papers 22387, National Bureau of Economic Research, Inc.
    15. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
    16. Jed DeVaro & Hodaka Morita, 2013. "Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 227-269.
    17. Ferreira, Daniel & Nikolowa, Radoslawa, 2017. "Adverse Selection and Assortative Matching in Labor Markets," CEPR Discussion Papers 11869, C.E.P.R. Discussion Papers.
    18. Amankwah-Amoah, Joseph, 2017. "Human Capital Flows in Failing Organizations: An Integrated Conceptual Framework," MPRA Paper 80781, University Library of Munich, Germany.
    19. William MacKenzie & Brian Klaas & John McClendon, 2012. "Information Use in Counter-Offer Decisions: An Examination of Factors that Influence Management Counter-Offer Decisions," Journal of Labor Research, Springer, vol. 33(3), pages 370-387, September.
    20. John M. Barron & Mark C. Berger & Dan A. Black, 2006. "Selective Counteroffers," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 385-410, July.
    21. Daniel Ferreira & Radoslawa Nikolowa, 2015. "Misallocation of Talent in Competitive Labor Markets," Working Papers 740, Queen Mary University of London, School of Economics and Finance.
    22. Feng, Shuaizhang & Zheng, Bingyong, 2010. "Imperfect Information, On-the-Job Training, and the Employer Size-Wage Puzzle: Theory and Evidence," IZA Discussion Papers 4998, Institute for the Study of Labor (IZA).
    23. Núria Rodríquez-Planas, 2011. "Displacement, Signaling, and Recall Expectations," Working Papers 550, Barcelona Graduate School of Economics.

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