Employer Learning Under Asymmetric Information: The Role of Job Mobility

Abstract

While recent literature suggests that employers learn about the productivity of new workers over time, there is little consensus on how information about workers' productive ability is accumulated by current and outside employers in the labor market. This paper studies the role played by endogenous job mobility during the employer learning process and develops an asymmetric employer learning model in which a worker's employment history can be used by outside employers to assess his quality. Previous studies on asymmetric employer learning builds on two-period mover-stayer models and precludes the signaling effects of job mobility by construction. By extending the mover-stayer framework to allow job mobility pattern be observed by recruiting firms in a three-period setting, I derive empirical implications regarding the relationship between wage rates, ability, schooling and overall measures of job mobility that enable me to differentiate symmetric employer learning model, mover-stayer model with asymmetric information, and asymmetric employer learning model with potential employers learning through workers' employment histories. Testing the model with data from the National Longitudinal Survey of Youth 1979 (NLSY-79), I find strong evidence supporting the three-period asymmetric employer learning model.