Counteroffers and Efficiency in Competitive Labor Markets with Asymmetric Information

Limor Golan ()

No 2002-E28, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: This paper considers the effect of offer matching on labor market outcomes when the current employer has better information about his worker's productivity than potential employers. Previous research found that when current employers have better information than potential employers, the later use job assignment to infer an employed worker's qualifications. As a result, assignment of workers to jobs is inefficient. I find that when current employers can match outside offers the equilibrium outcome is efficient despite the asymmetric information. I then analyze the effect of the asymmetric information on investment in human capital made by employers and workers, and find these investment levels to be first best.

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