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Title: The Inverted Job Ladder in Skilled Professions

Citation Type: Miscellaneous

Publication Year: 2019

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Abstract: How do workers initially match with firms, and how do these matches improve over time? A large job ladder literature devoted to this question proposes a hypothesis in which poached workers move to better firms while displaced workers move to worse firms. This paper shows that the job ladder in skilled professions is inverted, with downward-directed poaching and upward-directed displacement. I provide empirical evidence for this using a new historical dataset on lawyers. Guided by the evidence, I develop a model of dynamic labor market assignment that explains why the job ladder for lawyers is inverted, and is likely to be in most skilled professions. Each firm’s comparative advantage is to hire a worker whose location in the talent distribution matches its own location in the job ladder. Firms privately learn how talented their workers are and only allow below-average worker types (lemons) to be poached. Hence, poached workers move down the ladder to firms that are more specialized in lemons. Workers are revealed to have been under-placed when they are retained. Thus, by temporarily removing the lemons problem, random displacements help under-placed workers move up the ladder. I structurally estimate the model in order to quantify misallocation and appraise potential labor market reforms. I estimate that more than 20% of output is lost to misallocation induced by informational frictions. I find support for the use of academic competition as a means of generating stronger pre-job market signals of talent in order to reduce misallocation.

Url: https://rustinpartow.github.io/files/JMP_rustinpartow.pdf

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Authors: Partow, Rustin

Publisher: University of California at Los Angeles

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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