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A Theory of Monitoring and Internal Labor Markets

  • Gautam Bose
  • Kevin Lang

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17623.

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Date of creation: Nov 2011
Date of revision:
Handle: RePEc:nbr:nberwo:17623
Note: LS
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  1. Flabbi, Luca & Ichino, Andrea, 2001. "Productivity, seniority and wages: new evidence from personnel data," Labour Economics, Elsevier, vol. 8(3), pages 359-387, June.
  2. Illoong Kwon, 2006. "Incentives, wages, and promotions: theory and evidence," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 100-120, 03.
  3. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  4. Alan Manning & Farzad Saidi, 2010. "Understanding the Gender Pay Gap: What's Competition Got to Do with it?," ILR Review, Cornell University, ILR School, vol. 63(4), pages 681-698, July.
  5. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  6. David Bjerk, 2008. "Glass Ceilings or Sticky Floors? Statistical Discrimination in a Dynamic Model of Hiring and Promotion," Economic Journal, Royal Economic Society, vol. 118(530), pages 961-982, 07.
  7. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," NBER Working Papers 0278, National Bureau of Economic Research, Inc.
  8. Shulamit Kahn & Kevin Lang, 1992. "Constraints on the Choice of Work Hours: Agency Versus Specific-Capital," Journal of Human Resources, University of Wisconsin Press, vol. 27(4), pages 661-678.
  9. repec:rje:randje:v:37:y:2006:1:p:100-120 is not listed on IDEAS
  10. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
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