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 Catania)
   

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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