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Career Consequences of Hyperbolic Time Preferences

Francesco Drago

No 2113, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper I address theoretically and assess empirically the effect of impatience on workers' on-the-job behavior. Theoretically, short-run impatience explains several empirical regularities concerning job mobility and account for different on-the-job behaviors. On-the-job search on one hand and "collaborative behaviors" such as low absence rate and high effort on the other, strongly affect mobility and individual wage growth. On-the-job search results in higher wages with the new employer while collaboration leads to permanent wage increases with the same employer, mainly through promotion or position change. I provide a model that shows that, for identically productive individuals, heterogeneity in hyperbolic time preferences accounts for different mobility and career patterns. Patient workers undertake behaviors that lead to promotions. Impatient workers are more likely to be movers and to experience wage increases by switching jobs. The model rests on the empirical findings that the long term wage increases of stayers are in general larger than those of the movers, and the benefits resulting from collaboration are not as immediate as the rewards from search conditional on the arrival of a better job offer. I use a large longitudinal data set (NLSY 79) to test the predictions of the model. Various measures of impatience are positively correlated to the job arrival rate and negatively correlated to collaboration. Finally, using some theoretical predictions I am able to show empirically that the results are driven by variation in short-run impatience within the hyperbolic model rather than by variation in long-run impatience within the exponential model.

Keywords: wage growth; hyperbolic discounting; job mobility (search for similar items in EconPapers)
JEL-codes: C23 C70 J63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-05
New Economics Papers: this item is included in nep-bec, nep-lab and nep-ltv
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