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Author: Currimbhoy, Sadiq
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1. Currimbhoy, Sadiq
Pricing Labor in an Uncertain World
Ph.D. Dissertation, University Of Pennsylvania, 1995
Cohort(s): NLSY79
Publisher: UMI - University Microfilms, Bell and Howell Information and Learning
Keyword(s): Education Indicators; Job Skills; Modeling; Self-Reporting; Skilled Workers; Wage Differentials; Wage Models; Wages, Reservation; Wealth

This dissertation is a study of asymmetric information in the labor market and decision making by firms faced with uncertainty about a job applicant's true ability or productivity. The models use the insight of Weiss' (1980) adverse selection efficiency wage model as the building blocks for empirical tests of whether firms have incomplete information about a worker's productivity and how this problem is solved by the firm. Chapter 2 tests the fundamental assumption of the Weiss model that reservation wages are positively correlated with ability. To test this, we use self-reported reservation wages of non-employed males and ability scores from the National Longitudinal Survey of Youth and find that this is indeed the case. The finding that reservation wages rise with ability provides the focus of chapter 3. Since reservation wages are positively correlated with accepted wages, then ability would be correlated with wages via the reservation wage even if firms did not observe the worker's ability. We specify a model where wage is a function of the reservation wage and the worker's observable characteristics, and use variables, such as worker wealth, which do not affect marginal product to identify the system. We find that firms typically observe academic but not technical ability and that instrumenting for education allows us to better account for the firm's information set. The final chapter assesses the evidence for reduced uncertainty during the 1980s. We find that in the early 1980s, firms would use information regarding the sorting behavior of cohorts to price the individual worker's ability, indicating that there is incomplete information about the worker. We also find that the reliance on this cohort effect falls over time. These findings suggest that the dramatic increase in wage inequality between and within education groups is consistent with a model where the greater demand for skills encouraged firms to find the best skilled workers.T he action by firms reduced uncertainty in the labor market increasing wage inequality within education groups and deterred marginal workers from gaining higher education increasing inequality between groups.
Bibliography Citation
Currimbhoy, Sadiq. Pricing Labor in an Uncertain World. Ph.D. Dissertation, University Of Pennsylvania, 1995.