The Survival of Mediocre Superstars in the Labor Market. (22nd November 2021)

• Record Type: Journal Article
• Authors: Peeters, Thomas; Szymanski, Stefan; Terviö, Marko
• Is Part Of: Journal of law, economics, & organization. Volume 38:Number 3(2022)
• Page Start: 840
• Page End: 888
• Publication Date: 2021-11-22
• Subjects: Law -- Periodicals; Economics -- Periodicals; Organization -- Periodicals; Jurisprudence -- Periodicals; 340.05
• DOI: 10.1093/jleo/ewab035
• Languages: English
• ISSNs: 8756-6222

Abstract

Abstract: We argue that liquidity constrained firms face strong incentives to hire experienced, but low ability workers instead of novice workers with higher upside potential. Using four decades of high-frequency information on worker performance in a "superstar" labor market allows us to estimate the revealed ability of experienced workers at the time they are hired by a new firm. More than one-fifth of these hires are "substandard" in that the revealed ability of the hired experienced worker lies below the mean ability of recent novices. Even more hires (around 40%) are "mediocre, " as their ability falls short of the hiring threshold that maximizes the long-run average ability of the active workforce. Replacing mediocre hires by novice workers would increase the average ability of the workforce by 0.1 standard deviations. ( JEL J31, J44, L83, M51 ).