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Experimentation and Job Choice

In most models in which firms and workers learn about worker productivity through repeated observations of on-the-job performance, the amount of information revealed about workers is exogenously given and constant across jobs. In this paper, we examine what happens when the amount of information gathered about workers can be altered by assigning workers to different jobs. We show that informational differences across jobs naturally give rise to experimentation. That is, there is a trade off between current period output in order assign workers to jobs that reveal a substantial amount of information workers’ skills. We find that while experimentation is the most valuable when workers are young and inexperienced, the optimal level of experimentation is initially very small, rises as workers gain experience and then eventually declines. As a result, our model suggests that wage growth may be driven partly by a decline in experimentation as workers age. We also show that random productivity shocks can have long-lasting and, in some cases, permanent effects on both wages and wage growth.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E41.

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Handle: RePEc:cmu:gsiawp:-1768369455
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Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

Web page: http://www.tepper.cmu.edu/

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  1. Shintaro Yamaguchi, 2009. "Career Progression and Comparative Advantage," Global COE Hi-Stat Discussion Paper Series gd08-025, Institute of Economic Research, Hitotsubashi University.
  2. Jaime Ortega, 2001. "Job Rotation as a Learning Mechanism," Management Science, INFORMS, vol. 47(10), pages 1361-1370, October.
  3. Chade, Hector & Schlee, Edward, 2002. "Another Look at the Radner-Stiglitz Nonconcavity in the Value of Information," Journal of Economic Theory, Elsevier, vol. 107(2), pages 421-452, December.
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  8. Derek Neal, 1998. "The Complexity of Job Mobility Among Young Men," NBER Working Papers 6662, National Bureau of Economic Research, Inc.
  9. Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
  10. Marigee P. Bacolod & Bernardo S. Blum, 2010. "Two Sides of the Same Coin: U.S. "Residual" Inequality and the Gender Gap," Journal of Human Resources, University of Wisconsin Press, vol. 45(1).
  11. David, Paul A. & Temin, Peter, 1974. "Slavery: The Progressive Institution?," The Journal of Economic History, Cambridge University Press, vol. 34(03), pages 739-783, September.
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  13. Katz, Lawrence & Gibbons, Robert & Lemieux, Thomas & Parent, Daniel, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Scholarly Articles 2766651, Harvard University Department of Economics.
  14. 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.
  15. 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.
  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. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-120, December.
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