Working Paper: NBER ID: w1158
Authors: Edward P. Lazear
Abstract: Many job changes occur without intervening spells of unemployment. A model is constructed in an attempt to understand this phenomenon. It implies that the best workers are hired away first because, with imperfect information, prices do not fully adjust for quality. Thus, there develops stigma associated with failing to receive outside offers. The force of the stigma, which affects wages, depends upon the likelihood of discovering a worker's ability, the size of the market, and the speed of diffusion of information. In some occupations, it implies that there quickly develop pronounced differences in the treatment of raided and unraided workers. A consequence is a theory of occupational wage dispersion. The Peter Principle - that workers are promoted to a level of incompetence - is a direct implication.The model can be applied to product markets as well to explain the relationship between price and time on the shelf.
Keywords: Labor Market; Turnover; Wage Dynamics; Worker Quality
JEL Codes: J63; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| worker quality (J81) | turnover (J63) |
| external job offers (M51) | wage differentials (J31) |
| stigma (J70) | wages (J31) |
| worker age (J82) | productivity (O49) |
| firm knowledge (G32) | worker outcomes (J28) |
| worker quality (J81) | stigma (J70) |
| stigma (J70) | wage dispersion (J31) |