Specific Skills, Imperfect Information and Job Rationing

This chapter is about job rationing and segmented labour markets. It analyses labour market equilibrium when job applicants cannot observe directly the amount of specific training that is provided by different firms. But employees become aware of the quality of training and their productivity as the employment relationship evolves. This is important because specifically-trained workers enjoy a bargaining advantage; an employer would incur a loss in output if he replaced his trained workforce with new employees. As a result of their bargaining position, the trained workers’ wage is related positively to their productivity. Job applicants are therefore interested in identifying those firms that provide a large amount of specific training. It is shown that a firm’s wage offer to untrained workers may signal information about the training it provides. This informational role of wages is the reason why they may not adjust to equilibrate demand and supply for all jobs. Under imperfect information, different jobs may be associated with different present values of lifetime income. In such an equilibrium, there is job rationing and unequal treatment among identical workers.