Asymmetric Information between Employers

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IZA Seminar

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

Date: 11.10.2011, 12:15 - 13:30

   

Presentation by 

Lisa B. Kahn (Yale University)
   

Abstract:

Employer learning about workers'’ abilities plays a key role in determining how workers sort into jobs and are compensated. This study explores whether learning is symmetric or asymmetric, i.e., whether potential employers have the same information about worker ability as the incumbent fi…rm. I develop a model of asymmetric learning that nests the symmetric learning case and allows the degree of asymmetry to vary. I derive testable implications for the prevalence of asymmetric learning involving a new dependent variable: the variance in pay changes. Using the NLSY, I employ three distinct identification strategies to test different predictions of the model. I …first test whether laid-off workers appear negatively selected compared to workers who lost jobs in plant closings, by comparing the variances in pay changes at their new jobs. I next exploit the fact that groups of workers differ in their variances in ability –based on economic conditions at time of entry into a firm –to show that incumbent wages track ability more closely than do outside …firm wages. Finally, I provide additional evidence using the fact that learning about ability is more symmetric for some occupations than for others. All three cases favor the asymmetric learning model and suggest that the effect on wage setting is significant both economically and statistically.

   
   
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