Career Consequences of Hyperbolic Time Preferences

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 20.09.2005, 12:15 - 13:30

   

Presentation by 

Francesco Drago (University of Messina)
   

Abstract:

In this paper I address theoretically and assess empirically the effect of impatience on workers’ on-the-job behavior. Theoretically, workers’ hyperbolic time preferences and the implied selfcontrol problems explain several empirical regularities concerning job mobility and account for different on-the-job behaviors. On-the-job search on one hand and ”collaborative behaviors” such as number of working hours, low absence rate, and effort on the other, are crucial aspects of mobility and individual wage growth. On-the-job search results in higher wages with the new employer while ”collaborative behaviors” lead to permanent wage increases with the same employer, mainly through promotion or position change. I provide a model that shows that, for identically productive individuals, heterogeneity in hyperbolic time preferences accounts for different mobility and career patterns. Patient workers undertake behaviors that lead to promotions, they are more likely to be stayers and to follow fast-track-career paths with the same employer. Impatient workers are more likely to be movers and to experience wage increases by switching jobs. Hence, differences between stayers and movers are explained in terms of time preferences. The results of the model mainly rest on the fact that the benefits that result from collaboration are not perceived as immediate as the rewards from job-to-job movements conditional on the arrival of a better job offer. I use a large longitudinal data set (NLSY 79) to test the main conclusion of the model implementing logit, panel and duration estimations. Various measures of impatience are positively correlated to the job arrival rate and negatively correlated to collaboration. Finally, hyperbolic discounting rather than the exponential one is shown to be crucial to explain different career patterns.

   
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