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Worker Overconfidence: Field Evidence and Implications for Employee Turnover and Returns from Training

Author

Listed:
  • Hoffman, Mitchell

    () (University of Toronto)

  • Burks, Stephen V.

    () (University of Minnesota, Morris)

Abstract

Combining weekly productivity data with weekly productivity beliefs for a large sample of truckers over two years, we show that workers tend to systematically and persistently over-predict their productivity. If workers are overconfident about their own productivity at the current firm relative to their outside option, they should be less likely to quit. Empirically, all else equal, having higher productivity beliefs is associated with an employee being less likely to quit. To study the implications of overconfidence for worker welfare and firm profits, we estimate a structural learning model with biased beliefs that ac-counts for many key features of the data. While worker overconfidence moderately decreases worker welfare, it also substantially increases firm profits. This may be critical for firms (such as the main one we study) that make large initial investments in worker training.

Suggested Citation

  • Hoffman, Mitchell & Burks, Stephen V., 2017. "Worker Overconfidence: Field Evidence and Implications for Employee Turnover and Returns from Training," IZA Discussion Papers 10794, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10794
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    References listed on IDEAS

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    Cited by:

    1. Sascha Drahs & Luke Haywood & Amelie Schiprowski, 2018. "Job Search with Subjective Wage Expectations," Discussion Papers of DIW Berlin 1725, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    firm-sponsored training; truckload; turnover; biased learning; overconfidence; truck driver;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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