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Counteroffers and Efficiency in Labor Markets with Asymmetric Information

  • Limor Golan

    (Carnegie Mellon University)

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.

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File URL: http://dx.doi.org/10.1086/428705
File Function: main text
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 23 (2005)
Issue (Month): 2 (April)
Pages: 373-393

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Handle: RePEc:ucp:jlabec:v:23:y:2005:i:2:p:373-372
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 453-476.
  2. Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," NBER Working Papers 2968, National Bureau of Economic Research, Inc.
  3. Bernhardt, Dan & Scoones, David, 1993. "Promotion, Turnover, and Preemptive Wage Offers," American Economic Review, American Economic Association, vol. 83(4), pages 771-91, September.
  4. Acemoglu, Daron & Pischke, Jörn-Steffen, 1996. "Why do Firms Train? Theory and Evidence," CEPR Discussion Papers 1460, C.E.P.R. Discussion Papers.
  5. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Second Edition," NBER Books, National Bureau of Economic Research, Inc, number beck75-1, 07.
  6. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-61, September.
  7. 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.
  8. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
  9. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July.
  10. Derek Laing, 1994. "Involuntary Layoffs in a Model with Asymmetric Information Concerning Worker Ability," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 375-392.
  11. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 325-347.
  12. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
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