Rational Inattention and Employer Learning
Research on employer learning has provided important insights into the dynamic process that determines individual wages, especially during the early part of a worker's career. However, the recent evidence on the absence of employer learning for college graduates by Arcidiacono et al. (2008) and results that economic conditions at labor market entry have persistent effects on wages (for example Oreopoulos et al. (2008)) cast doubt on the model’s validity. This paper extends the employer learning model with the theory of rational inattention introduced by Sims (2006). In the model firms optimally allocate attention (=information processing capacity) to learning about the productivity of different worker groups. I find that firms allocate more attention to learning about the productivities of workers who have a higher impact on profits. Furthermore, firms learn about workers’ productivities as quickly as possible. Taken together these results resolve the discrepancy between the data and the employer learning model.
|Date of creation:||Nov 2010|
|Date of revision:|
|Publication status:||published in: Oxford Economic Papers, 2014, 66 (2), 605-626|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Arcidiacono & Patrick Bayer & Aurel Hizmo, 2008.
"Beyond Signaling and Human Capital: Education and the Revelation of Ability,"
NBER Working Papers
13951, National Bureau of Economic Research, Inc.
- Peter Arcidiacono & Patrick Bayer & Aurel Hizmo, 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 76-104, October.
- Patrick J. Bayer & Peter Arcidiacono & Aurel Hizmo, 2010. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," Working Papers 10-51, Duke University, Department of Economics.
- Bauer, Thomas K. & Haisken-DeNew, John P., 2001.
"Employer learning and the returns to schooling,"
Elsevier, vol. 8(2), pages 161-180, May.
- Bauer, Thomas & Haisken-DeNew, John P, 2000. "Employer Learning And The Returns To Schooling," CEPR Discussion Papers 2445, C.E.P.R. Discussion Papers.
- Bauer, Thomas K. & Haisken-DeNew, John P., 2000. "Employer Learning and the Returns to Schooling," IZA Discussion Papers 146, Institute for the Study of Labor (IZA).
- Paul Oyer, 2006. "Initial Labor Market Conditions and Long-Term Outcomes for Economists," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 143-160, Summer.
- Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
- George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
- Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
- Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5311. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.