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A Theory of Monitoring and Internal Labor Markets

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  • Gautam Bose
  • Kevin Lang

Abstract

We analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.

Suggested Citation

  • Gautam Bose & Kevin Lang, 2011. "A Theory of Monitoring and Internal Labor Markets," NBER Working Papers 17623, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17623
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    References listed on IDEAS

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    Cited by:

    1. Brad J. Hershbein, 2013. "Worker Signals among New College Graduates: The Role of Selectivity and GPA," Upjohn Working Papers and Journal Articles 13-190, W.E. Upjohn Institute for Employment Research.

    More about this item

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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