Knowledge that Transforms

We develop and estimate an equilibrium model of ability tracking in which schools decide how to allocate students into ability tracks and choose track-specific teacher effort; parents choose effort in response. The model is estimated using Early Childhood Longitudinal Study data. Our model suggests that a counterfactual ban on tracking would benefit low-ability students but hurt high-ability students. Ignoring effort adjustments would significantly overstate the impacts. We then illustrate the trade-offs involved when considering policies that affect schools’ tracking decisions. Setting proficiency standards to maximize average achievement would lead schools to redistribute their inputs from low- to high-ability students.

Being hired into a job depends not only on one’s own skill but also on that of other applicants. When another able applicant applies, a well-suited worker may be forced into unemployment or into accepting an inferior job. A model of this process defines over- and underqualification and provides predictions on its prevalence and on the wages of mismatched workers. It also implies that unemployment is concentrated among the least skilled workers, while vacancies are concentrated among high-skilled jobs. Four data sets are used to confirm the implications and establish that the hiring probability is low when competing applicants are able.

We investigate the claim that supervisors do not differentiate enough between high- and low-performing employees when evaluating performance. In a first step, this claim is illustrated in a formal model showing that rating compression reduces performance and subsequent bonus payments. The effect depends on the precision of performance information and may be reversed when cooperation is important. We then investigate panel data spanning different banks and find that stronger differentiation indeed increases subsequent bonus payments. The effect tends to be larger for larger spans of control and at higher hierarchical levels but is reversed at the lowest levels.

We study a model in which corporate social responsibility arises in response to inefficient regulation. In our model, firms, governments, and workers interact. Firms create negative spillovers that can be attenuated through government regulation, which is set endogenously and may not be socially optimal. Companies can hire socially responsible employees who enjoy correcting spillovers. Because firms can capture rents created by allowing this, they sometimes find it optimal to lobby for inefficient rules and then encourage socially responsible behavior in their midst. Thus, social responsibility can either increase or decrease social welfare, depending on the costs of political capture.

Most labor market search models ignore the fact that decisions are often made at the household level. We fill this gap by developing and estimating a household search model with on-the-job search and labor supply. We find that ignoring the household as a decision-making unit has relevant empirical consequences. In estimation, the individual search model implies gender wage offer differentials almost twice as large as the household search model. In the application, the individual search model implies female lifetime inequality 30% lower than the household search model. Labor market policy effects on lifetime inequality are also sensitive to the specification.

In this paper, we use linked employer-employee data to study the reallocation of heterogeneous workers between heterogeneous firms. We build on recent evidence of a cyclical job ladder that reallocates workers from low-productivity to high-productivity firms through job-to-job moves. In this paper, we turn to the question of who moves up this job ladder and the implications for worker sorting across firms. Not surprisingly, we find that job-to-job moves reallocate younger workers disproportionately from less productive to more productive firms. More surprisingly, especially in the context of the recent literature on assortative matching with on-the-job search, we find that job-to-job moves disproportionately reallocate less educated workers up the job ladder. This finding holds even though we find that more educated workers are more likely to work with more productive firms. We find that while highly educated workers are less likely to match to low-productivity firms, they are also less likely to separate from them, with less educated workers more likely to separate to a better employer in expansions and to be shaken off the ladder (separate to nonemployment) in contractions. Our findings underscore the cyclical role job-to-job moves play in matching workers to better-paying employers.

The number of workplace sex discrimination charges filed with the Equal Employment Opportunity Commission approaches 25,000 annually. Do the subsequent judicial proceedings suffer from a discriminatory gender bias? Exploiting random assignment of federal district court judges to civil cases, I find that female plaintiffs filing workplace sex discrimination claims are substantially more likely to settle and win compensation whenever a female judge is assigned to the case. Additionally, female judges are 15 percentage points less likely than male judges to grant motions filed by defendants, which suggests that final negotiations are shaped by the emergence of the bias.

Firms’ organizational structures impose constraints on their ability to use promotion-based incentives. We develop a framework for identifying these constraints and exploring their consequences. We show that firms manage workers’ careers by choosing personnel policies that resemble an internal labor market. Firms may adopt forced turnover policies to keep lines of advancement open, and they may alter their organizational structures to relax these constraints. This gives rise to a trade-off between incentive provision at the worker level and productive efficiency at the firm level. Our framework generates novel testable implications that connect firm-level characteristics with workers’ careers.

We study the relationship among productivity, management practices, and employee ability using German data combining management practices surveys with employees’ longitudinal earnings records. Including human capital reduces the association between productivity and management practices by 30%–50%. Only a small fraction is accounted for by the higher human capital of the average employee at better-managed firms. A larger share is attributable to the human capital of the highest-paid workers, that is, the managers. A similar share is mediated through the pay premiums offered by better-managed firms. We find that better-managed firms recruit and retain workers with higher average human capital.

Decomposing the year-to-year changes in the earnings distribution from 2004 to 2013, we analyze the role of the employer in explaining earnings inequality in the United States. Movements between the bottom, middle, and top involve 20.5 million workers each year. Another 19.9 million move between employment and nonemployment. There are large gains from working at a top-paying firm for all skill types. Working for a high-paying firm produces benefits today, through higher earnings, that persist through an increase in the probability of upward mobility. High-paying firms facilitate moving workers to the top of the distribution and keeping them there.