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Title: Matching, Reallocation, and Retention in Labor Markets

Citation Type: Dissertation/Thesis

Publication Year: 2020

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Abstract: This dissertation is devoted to studying how workers initially match with firms, and are sub-sequently retained or reallocated over time. The first two chapters—one theoretical, the otherempirical—specifically ask how asymmetric employer information distorts career placementand efficiency in a dynamic setting. The final chapter studies optimal dynamic compensa-tion policy from the standpoint of a single employer attempting to maximize retention atminimum cost.In Chapter 1, I develop a new framework to investigate the efficiency costs of asym-metric information in the labor market. I consider a setting where, similar to Greenwald(1986), employers have an inside advantage in learning their employees’ abilities. I thenadd complementarity between firms’ heterogeneous technologies and the abilities of theirworkers in order to study how asymmetric information can disrupt the efficient assignmentof workers to firms. Workers’ abilities are initially hidden and become privately observed bytheir employers. Incumbent firms retain high-ability workers. Low-ability workers separateto uninformed but comparatively advantaged outsiders where the returns to ability are low.Relative to a static optimum, new hires over-place into inefficiently high-type firms, andthen become under-placed as they accumulate tenure. These placement distortions presentan added source of inefficiency relative to a symmetric learning environment. I derive a vari-ety of testable implications of the model, and prove a non-parametric method for identifyingthe surplus function.In Chapter 2, I present evidence on how adverse selection and production complementar-ities interact to produce distinct patterns in reallocation. I build a new data-set on the USmarket for lawyers by linking together the Martindale-Hubbell professional directories from1930-1963. I show evidence that lawyers who separate from surviving firms are adverselyselected, and move to firms where their peers have lower average ability. Meanwhile, lawyerswho separate after their firm exits move to firms with higher-ability peers, but arenotposi-tively selected compared to similar lawyers who are retained. These results provide evidenceto support the asymmetric learning model of Chapter 1.In Chapter 3, which is co-authored with Moshe Buchinsky and John de Figueiredo,we examine the cost-effectiveness of compensation policy in the federal government. Weestimate a dynamic retention model using the federal government’s personnel data, exploitingexogenous pay variation caused by the 1990s civil service pay reform known as the FederalEmployees Pay Comparability Act (FEPCA). We find that the elasticity of retention to payis typically around 25% for the workers in our sample. The model can be combined withassumptions about government hiring in order to make long-run out-of-sample forecasts of payroll costs, turnover, and workforce composition under alternative compensation policies.

Url: https://escholarship.org/content/qt42n0h5zm/qt42n0h5zm_noSplash_fbb7526952aa4b480d9235d6f36a4879.pdf

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Authors: Partow, Rustin John

Institution: UCLA

Department: Economics

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Pages: 1-107

Data Collections: IPUMS USA - Ancestry Full Count Data

Topics: Labor Force and Occupational Structure, Work, Family, and Time

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