Imperfect Information, On-the-Job Training, and the Employer Size-Wage Puzzle: Theory and Evidence

50 Pages Posted: 29 Jun 2010

See all articles by Shuaizhang Feng

Shuaizhang Feng

Shanghai University of Finance and Economics - Department of Economics; Princeton University; IZA Institute of Labor Economics

Bingyong Zheng

Shanghai University of Finance and Economics - School of Economics

Abstract

This paper develops a two-period labor market model with imperfect information and on-the-job training, and uses data from National Longitudinal Survey of Youth 1979 Cohorts (NLSY79) to test its predictions. We find that training does not explain the positive relationship between employer size and wage. In addition, for industries that display size-wage premium, workers in large establishments are more likely to receive on-the-job training but their return to training is smaller. Our theory, substantiated by the new empirical evidence, suggests that it is not large firms, per se, but firms that hire better workers who are paying a wage premium.

Keywords: imperfect information, sorting, on-the-job training, size-wage premium

JEL Classification: D83, J31

Suggested Citation

Feng, Shuaizhang and Zheng, Bingyong, Imperfect Information, On-the-Job Training, and the Employer Size-Wage Puzzle: Theory and Evidence. IZA Discussion Paper No. 4998, Available at SSRN: https://ssrn.com/abstract=1631133 or http://dx.doi.org/10.2139/ssrn.1631133

Shuaizhang Feng (Contact Author)

Shanghai University of Finance and Economics - Department of Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Princeton University

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Princeton, NJ 08544-0708
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IZA Institute of Labor Economics

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Germany

Bingyong Zheng

Shanghai University of Finance and Economics - School of Economics ( email )

Shanghai, 200433
China
86-21-6590-3124 (Phone)

HOME PAGE: http:// https://sites.google.com/site/bingyongzheng/

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