DP11869 Adverse Selection and Assortative Matching in Labor Markets
|Author(s):||Daniel Ferreira, Radoslawa Nikolowa|
|Publication Date:||February 2017|
|Programme Areas:||Labour Economics, Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11869|
We show that adverse selection in the labor market may generate negative assortative matching of workers and firms. In a model in which employers asymmetrically learn about the ability of their workers, high-productivity firms poach mediocre workers, whereas low-productivity firms retain high-ability workers. We show that this flipping property is caused by information asymmetry alone. Our model has a number of positive and normative predictions: External promotions are not an indication of high talent, within-job wage growth is higher in industries with more revenue dispersion, and non-compete clauses are inefficient in industries with significant firm heterogeneity.