A Theory of Monitoring and Internal Labor Markets

46 Pages Posted: 13 Jan 2012

See all articles by Gautam Bose

Gautam Bose

UNSW Australia Business School, School of Economics

Kevin Lang

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 20, 2011

Abstract

We analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.

Keywords: Labor markets

JEL Classification: J01, J41

Suggested Citation

Bose, Gautam and Lang, Kevin, A Theory of Monitoring and Internal Labor Markets (November 20, 2011). UNSW Australian School of Business Research Paper No. 2012ECON06, Available at SSRN: https://ssrn.com/abstract=1984369 or http://dx.doi.org/10.2139/ssrn.1984369

Gautam Bose (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Kevin Lang

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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