Competing for Talent
52 Pages Posted: 30 Jan 2018 Last revised: 16 Mar 2018
Date Written: January 29, 2018
In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two firms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant’s arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across firms.
Keywords: Unraveling, Talent, Wage Bargaining, Competition, Uncertainty
JEL Classification: C7, D8, J3
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