Knowledge that Transforms

Models of employer learning have two implications: first, the distribution of wages becomes more dispersed as a cohort of workers gains experience; second, the coefficient on an ability correlate that employers initially do not observe grows with experience. If learning by employers varies across occupations, both of these indicators of learning should covary positively across groups defined by a worker’s initial occupational assignment. This paper tests these implications using data from the NLSY79 and CPS. I find that there is significant heterogeneity in the employer learning process across occupations and that occupational assignment affects the learning process independently of education.

I extend Spence’s signaling model by assuming that some workers are overconfident—they underestimate their marginal cost of acquiring education—and some are underconfident. Firms cannot observe workers’ productive abilities and beliefs but know the fractions of high-ability, overconfident, and underconfident workers. I find that biased beliefs lower the wage spread and compress the wages of unbiased workers. I show that gender differences in self-confidence can contribute to the gender pay gap. If education raises productivity, men are overconfident, and women underconfident, then women will, on average, earn less than men. Finally, I show that biased beliefs can improve welfare.

We assess the information spillovers generated by the exchange of job-related information within networks of fellow workers exploiting administrative records covering all employment relationships established in a specific local labor market over 20 years. We recover individual-specific networks of former colleagues for a sample of workers exogenously displaced by firm closures and relate their subsequent unemployment duration to the share of employed contacts at displacement date. Individual-specific networks and the longitudinal dimension of the data allow to account for most plausible sources of omitted variable bias. In particular, identification rests on within-closure within-neighborhood and within-skill comparisons conditional of a wide range of predictors for the displaced and his contacts' employment status, such as lagged wages and labor market attachment. We find that contacts' current employment rate has statistically significant effects on unemployment duration: a one standard deviation increase in the network employment rate reduces unemployment duration by about 8 percent; as a benchmark, a one standard deviation increase in own wage at displacement is associated with a 10 percent lower unemployment duration. These effects are magnified if contacts recently searched for a job and if their current employer is closer, both in space and in skills requirements, to the displaced. We find that stronger ties and lower competition for the available information also speed up re-employment. A number of specification checks and indirect tests suggests the estimated spillover effect of contacts' current employment status is driven by information exchange rather than by other interaction mechanisms.

Using data from the Federal Bureau of Investigation’s Uniform Crime Report program and differences in the timing of the reform’s introduction, we find that unilateral divorce caused an increase in violent crime rates of approximately 9% during the period 1965–96. When we use age at the time of the reform as an additional source of variation, our findings suggest that young adult cohorts, who were children at the time of the reform, were particularly affected. Finally, we show evidence that a potential channel behind our findings is an increase in poverty and inequality among mothers who were “surprised” by the reform.

We study the effects of the Mexican conditional cash transfer program Progresa on school enrollment and performance in passing grades. We develop a theoretical framework of the dynamics of the educational process including endogeneity and uncertainty of school performance. Using a randomized experiment implemented under Progresa, we identify the effect of the program on enrollment and performance in the first year of the program. We find that the program had a positive impact on school enrollment at all grade levels, whereas for performance it had a positive impact at the primary school level but a negative impact at the secondary level.

Promotions play an important role for the provision of incentives in firms. We analyze incentives in multistage elimination tournaments with controlled laboratory experiments. In our two main treatments, we compare a two-stage tournament to a one-stage tournament. Subjects in the two-stage treatment provide excess effort in the first stage, both with respect to Nash predictions and compared to the strategically equivalent one-stage tournament. Additional control treatments confirm that excess effort in early stages is a robust finding and suggest that above-equilibrium effort might be driven by limited degrees of forward-looking behavior and subjects deriving nonmonetary value from competing.

In this article, we examine optimal job choices when jobs differ in the rate at which they reveal information about workers’ skills. We then analyze how the optimal level of experimentation changes over a worker’s career and characterize job transitions and wage growth over the life cycle. Using the Dictionary of Occupational Titles merged with the National Longitudinal Survey of Youth 1979, we then construct an index of how much information different occupations reveal about workers’ skills and document patterns of occupational choice and wage growth that are consistent with a trade-off between information and wages.

We show that the reported tendency for performance pay to be associated with greater wage inequality at the top of the earnings distribution applies only to white workers. This results in the white-black wage differential among those in performance pay jobs growing over the earnings distribution even as the same differential shrinks over the distribution for those not in performance pay jobs. We show that this remains true even when examining suitable counterfactuals that hold observables constant between whites and blacks. We explore reasons behind our finding focusing on the interactions between discrimination, unmeasured ability, and selection.

The employment to population rate of high school–aged youth has fallen by about 20 percentage points since the late 1980s. One potential explanation is increased competition from substitutable labor, such as immigrants. I demonstrate that the increase in the population of less educated immigrants has had a considerably more negative effect on employment outcomes for native youth than for native adults. At least two factors are at work: there is greater overlap between the jobs that youth and less educated adult immigrants traditionally do, and youth labor supply appears more responsive to immigration-induced wage changes.

Despite the importance of expectations in models of decision behavior under uncertainty, few empirical economists have made use of subjective expectations data in estimating such models. Assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information, it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior. The value of self-reported choice expectations is illustrated by using information on respondents’ expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty.