Learning by Doing vs. Learning About Match Quality: Can We Tell Them Apart?

Understanding the accumulation of match-specific capital is crucial in shedding light on the reasons for the prevalence of long-term employment relationships and on the welfare consequences of turnover in the labour market. One of the most important sources of match-specific capital is human capital acquired through match-specific learning. Such learning can take on two distinct forms. In the first case, workers accumulate match-specific human capital through learning by doing. In the second case, a worker and a firm in an employment relationship learn about the quality of the match over time, thereby acquiring valuable information. I construct a structural model that embeds these two learning explanations and show that it is possible to distinguish the two by using turnover data on employing firms coupled with data on workers. I use a French matched employer—employee data-set to estimate the structural model using the Efficient Method of Moments, a simulation-based estimation method. I find that, while learning by doing may be present during the first six months of an employment relationship, learning about match quality dominates at longer tenures. This finding has important consequences for the understanding of the sources of match-specific capital and for the desirability of policies that alter the incentives for turnover for workers of different tenure. Copyright 2007, Wiley-Blackwell.