What question did this study set out to answer?

Examine how wage offers and testing criteria can act as self-selection mechanisms to allocate workers efficiently when productivity cannot be directly observed prior to hiring.

July 1, 1980The Review of Economic Studies

Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing

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Examine how wage offers and testing criteria can act as self-selection mechanisms to allocate workers efficiently when productivity cannot be directly observed prior to hiring.
Constructed a microeconomic equilibrium model of competitive labor markets operating under asymmetric information regarding worker productivity.
Modeled applicant choice behavior across wage contracts paired with testing standards varying in stringency, accuracy, and administrative cost.
Demonstrated that firms can offer wage schedules that induce workers of differing unobserved abilities to self-sort into appropriate employment pools.
Showed that even imperfect testing regimes establish viable market equilibria, generating wage dispersion and preventing low-productivity pooling.

Implication

Theoretical analysis reveals how wage structures and testing sort workers under asymmetric information, suggesting competitive firms use compensation design to identify worker ability.

Abstract

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

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Cite This Study

Guasch et al. (1980) studied this question.

synapsesocial.com/papers/6a09b7e54db7968590517be5 https://doi.org/10.2307/2296934

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Implication

Theoretical analysis reveals how wage structures and testing sort workers under asymmetric information, suggesting competitive firms use compensation design to identify worker ability.

Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing

Key Points

Implication

Abstract

Discussion

Cite This Study

Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing

Key Points

Implication

Abstract

Discussion

Cite This Study

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