Repeated Matching, Career Concerns, and Firm Size

Abstract

We propose a two-period matching model of firms and managers to argue that managerial career concerns may not guarantee assortative matching in the market for reputation. In the model, firms compete for managerial talent, and managers are concerned about their reputations. The market updates managers’ reputations whenever their performance is available, which leads to rematching in a subsequent period. We show that some talented managers sit out the market in an earlier period to secure their reputations in a later period. Moreover, the size distribution of firms—by influencing the wage distribution of managers—is a key determinant of early sitting out: managers’ sitting out never happens under a uniform distribution of firm size, whereas it may happen under a Pareto distribution. The model can be applied to analyzing cross-sectional patterns of managerial labor supply across industries or countries, depending on the size distributions of firms.

Keywords: career concerns; labor market; repeated matching; firm size distributions

JEL Classification: C78; J31; L25; M12; M51