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Information Cascades in the Labor Market

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  • Dorothea Kübler
  • Georg Weizsäcker

Abstract

A model of herding behavior on the labor market is discussed where employers only receive signals with limited precision about the workers' types, but can observe previous employers' decisions. In particular, we study a situation where the employer and the worker can influence the signal probabilities, in the sense that the employer tries to increase the precision of the signal about the worker's type whereas the worker tries to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the worker's type, but he does follow his own signal if the worker's history is good.
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Suggested Citation

  • Dorothea Kübler & Georg Weizsäcker, 2003. "Information Cascades in the Labor Market," Journal of Economics, Springer, vol. 80(3), pages 211-229, November.
    • Handle: RePEc:kap:jeczfn:v:80:y:2003:i:3:p:211-229
    DOI: 10.1007/s00712-002-0615-0
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    Citations

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    Cited by:

    1. Hiroshi Teruyama & Hiroyuki Toda, 2017. "Polarization and Persistence in the Japanese Labor Market," KIER Working Papers 957, Kyoto University, Institute of Economic Research.
    2. Cuesta, Maite Blázquez & Budría, Santiago, 2017. "Unemployment persistence: How important are non-cognitive skills?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 69(C), pages 29-37.
    3. Debrah Meloso & Salvatore Nunnari & Marco Ottaviani, 2023. "Looking into Crystal Balls: A Laboratory Experiment on Reputational Cheap Talk," Management Science, INFORMS, vol. 69(9), pages 5112-5127, September.
    4. Oberholzer-Gee, Felix, 2008. "Nonemployment stigma as rational herding: A field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 65(1), pages 30-40, January.
    5. Lan Chen & Yufei Ji & Xichen Yao & Hengshu Zhu, 2024. "Occupation Life Cycle," Papers 2406.15373, arXiv.org.
    6. Randall Morck, 2008. "Behavioral finance in corporate governance: economics and ethics of the devil’s advocate," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(2), pages 179-200, May.
    7. Yang, Wan-Ru, 2011. "Herding with costly information and signal extraction," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 624-632, October.
    8. Randall Morck, 2009. "Generalized Agency Problems," NBER Working Papers 15051, National Bureau of Economic Research, Inc.
    9. Biewen, Martin & Steffes, Susanne, 2010. "Unemployment persistence: Is there evidence for stigma effects?," Economics Letters, Elsevier, vol. 106(3), pages 188-190, March.
    10. Fahr, René & Irlenbusch, Bernd, 2011. "Who follows the crowd—Groups or individuals?," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 200-209.
    11. Paul J. Healy & John Conlon & Yeochang Yoon, 2016. "Information Cascades with Informative Ratings: An Experimental Test," Working Papers 16-05, Ohio State University, Department of Economics.
    12. Kneib, Thomas & Silbersdorff, Alexander & Säfken, Benjamin, 2023. "Rage Against the Mean – A Review of Distributional Regression Approaches," Econometrics and Statistics, Elsevier, vol. 26(C), pages 99-123.

    More about this item

    Keywords

    herding; labor market; endogenous signal quality; D83; J64;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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