In recent years, Federal Reserve Chairman Alan Greenspan, former U.S. Secretary of Labor Robert Reich, and many journalists have argued that workers are more anxious about losing their jobs than they were in the past. I use the 1977‐96 General Social Survey to document trends in workers' beliefs about their own job security. During the 1990s, workers have been more pessimistic about losing their jobs in the next 12 months than workers were during the 1980s. Workers have also been more concerned about suffering future job loss that would have resulted in a decline in earnings or a spell of unemployment.

I study workers' incentives to invest in general human capital (education) in the presence of search‐induced unemployment. Workers queue for jobs, and firms prefer to hire the most productive applicants because of rent sharing. As a result, an unemployed worker's ranking relative to other job seekers will influence his job‐finding rate. This creates a “rat race,” where workers invest in education partly in order to achieve a better ranking. In equilibrium, identical workers may have incentives to diversify in terms of education, and the investments in education may exceed the socially optimal level.

We use a unique new data set that combines data on individual workers and their employers to estimate marginal productivity differentials among different types of workers. We then compare these to estimated relative wages, leading to new evidence on productivity‐based and nonproductivity‐based explanations of the determination of wages. Among our findings are (1) the higher pay of prime‐aged workers (aged 35–54) and older workers (aged 55+) is reflected in higher point estimates of their relative marginal products, and (2) for the most part, the lower relative earnings of women are not reflected in lower relative marginal products.