Heterogeneity in the Labor Market: Ability and Information Acquisition

Abstract

This paper relates five previously unobserved individual attributes (namely, three measures of ability based on the lifecycle human capital model, a rate of time preference, and a skill depreciation rate) to estimates of worker and firm incomplete labor market information for 1539 NLS-Y respondents. First, it finds more able employees obtain more information (or bargain better) about wages than their less able counterparts, whereas firms obtain relatively more information (or bargain better) when dealing with low ability workers. Second, it finds that workers whose skills depreciate more quickly possess less wage information (or bargain more poorly) than workers whose skills depreciate less quickly. Similarly, it finds employees with a greater time discount rates have less wage information (or bargain more poorly) than those employees with lower discount rates.

Keywords: heterogeneity, incomplete information, ability