Using a sample of newly hired semiskilled production workers at two manufacturing facilities, I investigate various factors affecting the probability of workers' quitting. Workers who quit a previous job to take the jobs studied are less likely to quit than are workers who were unemployed when they applied for the jobs surveyed. Workers assigned to more complex tasks are more likely to quit their jobs than are workers assigned to simpler tasks. Younger workers are more likely to quit than are older workers. Better-educated workers have lower quit propensities than do less well educated workers. These correlations, which stem from multiple regressions using probit estimation routines, can be explained by a model in which individuals' quit propensities are functions of their alternative opportunities, job satisfaction, and the pecuniary and nonpecuniary costs of quitting.

Using data from the Panel Study of Income Dynamics and a proprietary sample of semiskilled production workers, this paper investigates the reasons for the discontinuous increase in wages associated with graduation from high school. I find a discontinuous decrease in workers' propensities to quit or be absent. However, I do not find that high school graduates have a comparative advantage in production jobs requiring more training, nor in either sample is there a discontinuous increase in required training associated with the jobs held by high school graduates. The wage premium associated with graduation from high school appears to be procyclical: falling during slumps, periods in which employers are likely to be hoarding labor and in which quits and absences are least important to firms. There is also some evidence suggesting that prior quits have a larger effect on the wages of high school graduates than on the wages of high school dropouts.

This paper presents a sorting model of education in which individuals are tested in school. By assuming that higher-ability individuals are more likely to succeed on a given test, one can construct a sorting model of education that does not hinge on the more able having lower nonpecuniary costs of schooling. Nash equilibria always exist in this model (even with a continuum of types of individuals); however, some are "unreasonable." To eliminate these unreasonable Nash equilibria, more restrictive definitions of equilibrium are proposed. I also show that when schooling affects productivity--and therefore a worker's probability of passing the test--a sorting equilibrium may be characterized by too little investment in education.

Models of a heterogeneous labor market are presented in which a worker's acceptance wage is an increasing function of his ability, and in which firms have imprecise information concerning the labor endowment of particular workers.Because the expected labor endowment of a hiree is an increasing function of the firm's wage offer, industrial firms may choose not to lower wages when confronted with a queue of job applicants. Rejected job applicants will not be able to increase their probability of employment by lowering their acceptance wages. Firms may choose to simultaneously hire and fire workers.

We present a model of firm behavior in which firms choose a wage and a hiring standard to maximize their profits. The correlation between productivity and reservation wage affects the relationship among firm size, wages, and hiring standards. In the special case where labor productivity is a linear function of a worker's reservation wage, we find that in the absence of hiring costs wages are monotonically increasing with firm size. Any positive hiring costs, however, result in an interval of sufficiently small firms within which wages decrease with firm size. In all cases, among sufficiently large firms, wages increase with firm size. A review of previous empirical evidence finds that in some occupations the relationship between wages and firm size is U-shaped, while in other occupations wages increase monotonically with firm size. These empirical findings are consistent with our theoretical results.

In the mid-1970s several authors studied models of markets with asymmetric information in which equilibria do not exist. Although those authors focused on models of insurance and education, it was recognized that similar nonexistence problems arise in a wide class of models with asymmetric information. Recently, Dasgupta and Maskin have demonstrated that for a game-theoretic version of at least one of those models, although no equilibria may exist in pure strategies, equilibria exist in mixed strategies. In the present paper we construct a mixed-strategy equilibrium for one member of the class—Spence's signalling model of education. Qualitative features of the equilibrium are explored.

We develop a model in which each firm chooses a hiring standard as well as a wage schedule and an application fee, we then characterize the set of Nash equilibria, and establish necessary and sufficient conditions for the existence of equilibrium. If the distribution of productivities within each ability type is Gaussian, workers who pass the test will be paid more than the value of their marginal product, while workers who fail the test will receive a wage, net of the application fee, below the value of their marginal product.

Journal Article Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing Get access J. Luis Guasch, J. Luis Guasch University of California, San Diego Search for other works by this author on: Oxford Academic Google Scholar Andrew Weiss Andrew Weiss Bell Laboratories Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 4, July 1980, Pages 653–664, https://doi.org/10.2307/2296934 Published: 01 July 1980 Article history Received: 01 June 1977 Accepted: 01 September 1979 Published: 01 July 1980

Among firms entering a market sequentially, operating under imperfect information and hiring workers with the same observable characteristics, it is shown that in the presence of transaction costs or "lock-in" effects each new firm offers a wage above the one previously offered and obtains higher profits than previous entrants. On average, each new firm gets more able workers than the previous firms, and at any point in time those workers employed by firms are less able than those self-employed. Also, it is shown that a Nash equilibrium entry ordering for firms exits.

In their 1981 article, Joseph Stiglitz and Andrew Weiss analyze adverse selection and incentive effects in the loan market. The models considered are based on two crucial assumptions: borrowers are subject to limited liability; and lenders cannot distinguish borrowers (projects) of different risk. Stiglitz and Weiss show that a bank that raises its interest rate may suffer adverse selection because only risky borrowers will be willing to borrow at the higher rate. Thus lenders may choose not to raise the interest rate to eliminate excess demand, resulting in the possibility of a rationing equilibrium. Stiglitz and Weiss also consider briefly the role of collateral in such credit rationing models. They conclude that lenders may choose not to use collateral requirements as a rationing device. An increase in collateral requirements, like an increase in the interest rate, potentially leads to a decrease in the lender's expected return on loans because of resulting adverse incentive and selection effects. The purpose of this note is to further investigate the role of collateral in these models. Stiglitz and Weiss' discussion in Section III establishes that adverse selection effects can result from increases in collateral when borrowers are risk averse. I will show by returning to a model they discussed earlier in Section I, that the adverse selection effects can also occur when borrowers are risk neutral. Stiglitz and Weiss outline a model to consider the use of collateral as a rationing device (Section III). In that model, all potential borrowers face the same array of risky projects; each potential borrower chooses (at most) one of those projects to undertake. The individuals are, by assumption, risk averse with decreasing absolute risk aversion, and possess different amounts of initial wealth. Thus, choice of project (if any) to undertake and the method of finance-selffinance from initial wealth or loan finance-will differ from one individual to the next. Stiglitz and Weiss show that, among those who undertake risky projects and who choose borrowing as the method of finance, wealthier individuals undertake riskier projects. An increase in collateral has two effects on the market for loans: those individuals who remain in the market will choose to undertake less-risky projects; and those individuals who drop out of the market are less-wealthy, low-risk borrowers. If the second effect is sufficiently strong, then increased collateral requirements will mean decreased expected returns for the lender. Thus, a credit rationing equilibrium may occur, since lenders may not choose to use collateral requirements (or the interest rate) to eliminate excess demand. The adverse selection effect just described does not occur in this model if the individuals are risk neutral. Consequently, the potential for a credit rationing equilibrium is limited to cases where borrowers are risk averse. To see that increases in collateral requirements can also result in adverse selection if borrowers are risk neutral, consider the model Stiglitz and Weiss used to analyze the adverse selection effects of increases in the interest rate (Section I, pp. 395-99). It differs from the Section III model discussed above in three ways. First, borrowers are risk neutral; second, all projects ar loan financed. The analogy to the Section III model is that no individuals have sufficient wealth to self-finance projects.' Third, in the Section