Inefficient Labor Market Sorting

Carsten Eckel and Stephen Yeaple

No 437, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: A growing empirical literature attributes much of the productivity advantages of large, "superstar" firms to their adoption of best practice management techniques that allow them to better identify and use talented workers. The reasons for the incomplete adoption of these "structured management practices" and their welfare implications are not well understood. This paper provides a positive and normative analysis of these issues in a theoretical framework in which structured management practices induce sorting of talent across firms. Incomplete adoption arises because worker talent is in limited supply. In equilibrium there is excessive adoption of structured management practices and too much sorting of talented workers into large firms. In this second-best environment, policy changes that favor large firms, such as trade liberalization, have the potential to lower welfare.

Keywords: labor market imperfection; misallocation; productivity; wage inequality; international trade; welfare (search for similar items in EconPapers)
JEL-codes: F12 F16 J31 J33 J42 M51 (search for similar items in EconPapers)
Date: 2023-10-23
New Economics Papers: this item is included in nep-hrm and nep-lma
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Related works:
Journal Article: Inefficient labor market sorting (2024)
Working Paper: Inefficient Labor Market Sorting (2024)
Working Paper: Inefficient Labor Market Sorting (2023)
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