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Assortative Learning

Author

Listed:
  • Xi Weng

    (UPenn)

  • Jan Eeckhout

    (UPF and UPenn)

Abstract

Because of sorting, more skilled workers are more productive in higher type firms. They also learn at different rates about their productivity and therefore expect different wage paths across firms. We show that under strict supermodularity there is always Positive Assortative Matching: differential learning is always dominated by the impact of productivity. Surprisingly, this holds even if learning is faster in the low type firm. The key assumption driving this result is that this is a pure Bayesian learning model. We also derive a new equilibrium condition in this class of continuous time models in addition to the common smooth-pasting and value- matching conditions. This no-deviation condition captures sequential rationality and results in a restriction on the second derivative of the value function.

Suggested Citation

  • Xi Weng & Jan Eeckhout, 2010. "Assortative Learning," 2010 Meeting Papers 356, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:356
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    Other versions of this item:

    • Jan Eeckhout & Xi Weng, 2022. "Assortative Learning," Economica, London School of Economics and Political Science, vol. 89(355), pages 647-688, July.

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    Cited by:

    1. Anna-Elisabeth Thum, 2014. "Labor Market Integration of German Immigrants and Their Children: Does Personality Matter?," SOEPpapers on Multidisciplinary Panel Data Research 723, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Michelacci, Claudio & Pijoan-Mas, Josep, 2016. "Labor supply with job assignment under balanced growth," Journal of Economic Theory, Elsevier, vol. 163(C), pages 110-140.
    3. Jeremy McCauley, 2020. "The Role of Information in Explaining the Lack of Welfare-Induced Migration," Bristol Economics Discussion Papers 20/729, School of Economics, University of Bristol, UK.
    4. Macho-Stadler, Inés & Pérez-Castrillo, David & Porteiro, Nicolás, 2014. "Coexistence of long-term and short-term contracts," Games and Economic Behavior, Elsevier, vol. 86(C), pages 145-164.

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