Surveying employment-related newspaper advertisements over several centuries, we identify four eras (neither workers nor firms posted ads, mostly workers posted ads, mostly firms posted ads, and both parties regularly posted ads). These eras can be understood in the context of the equilibrium of a matching model that incorporates strategic interactions by both sides of the labor market. Potential explanations for transitions across eras include increasing literacy rates, expansion of social insurance programs, growth in the labor force and firm size, reduction in mobility costs and search frictions, and the internet.

We investigate the effect of employee heterogeneity on the incentive to exert effort in a market-based tournament. External employers use promotion decisions to estimate employees’ abilities and adjust their wage offers accordingly. Employees exert effort to increase the probability of being promoted and thus to increase their ability assessment and wage offer. We demonstrate that ability assessments and wage offers are more sensitive to promotion decisions in the case of heterogeneous employees. Thus, employees have a higher incentive to affect the tournament outcome, and employers find it optimal to hire heterogeneous employees.