Labor Market Categorization: Theory and Evidence on Initial Wages from the Nlsy

Posted: 2 Apr 1997

See all articles by Timothy R. Hylan

Timothy R. Hylan

Eli Lilly and Company

Maureen J. Lage

Miami University of Ohio - Department of Economics

Michael Treglia

Miami University of Ohio - Richard T. Farmer School of Business Administration

Date Written: November 1996

Abstract

A pre-employment assessment of potential workers is often used by firms to mitigate the costs of poor employee selection and job placement. This paper presents an adverse selection model of the labor market wherein firms first use observable characteristics of employees as a sorting device and then offer a menu of wage contracts to induce worker self-selection by type within categories. The model yields a prediction on initial wages distinct from models of human capital, learning, and search. A test of the prediction is conducted using the 1986-1993 panels of the National Longitudinal Survey of Youth, and the main result provides evidence supporting the categorization model.

JEL Classification: J23, J41

Suggested Citation

Hylan, Timothy R. and Lage, Maureen J. and Treglia, Michael, Labor Market Categorization: Theory and Evidence on Initial Wages from the Nlsy (November 1996). Available at SSRN: https://ssrn.com/abstract=3851

Timothy R. Hylan

Eli Lilly and Company ( email )

Lilly Corporate Center
Indianapolis, IN 46285
United States

Maureen J. Lage (Contact Author)

Miami University of Ohio - Department of Economics ( email )

208 Laws Hall
Oxford, OH 45056
United States
513-529-2840 (Phone)
513-529-6992 (Fax)

Michael Treglia

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

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