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Rational inattention and employer learning

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  • Steffen Habermalz

Abstract

Recent research results cast doubt on the validity of the employer learning model by empirically establishing the absence of learning over time among college graduates and by documenting persistent, negative effects of graduating during a recession. This paper extends the employer learning model with the theory of rational inattention in which firms optimally allocate limited attention (i.e., information processing capacity) to learning about the productivities of different workers. I find that firms allocate more attention to workers who have a higher impact on profits (i.e., college graduates) and learn as much as possible in the current period. Taken together these results imply the absence of learning over time for college graduates and indicate that a college graduate that gets (mis)matched to a job with a lower impact on profits will find herself at a persistent disadvantage. The paper therefore resolves the discrepancy between the data and the employer learning model.

Suggested Citation

  • Steffen Habermalz, 2014. "Rational inattention and employer learning," Oxford Economic Papers, Oxford University Press, vol. 66(2), pages 605-626.
  • Handle: RePEc:oup:oxecpp:v:66:y:2014:i:2:p:605-626.
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    File URL: http://hdl.handle.net/10.1093/oep/gpt009
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    Cited by:

    1. Meir Russ, 2017. "The Trifurcation of the Labor Markets in the Networked, Knowledge-Driven, Global Economy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(2), pages 672-703, June.
    2. Wang, Jun & Li, Bo, 2020. "Does employer learning with statistical discrimination exist in China? Evidence from Chinese Micro Survey Data," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 319-333.
    3. Tongkui Yu & Shu-Heng Chen, 2021. "Big Data, Scarce Attention and Decision-Making Quality," Computational Economics, Springer;Society for Computational Economics, vol. 57(3), pages 827-856, March.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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