Screening, Monitoring, and Sorting across Occupations

Why are some occupations subject to wage competition for talent, while others are not? In this paper I explore the relationship between the tasks performed in an occupation and how much the employer values ex ante signals of talent. For occupations in which employers can easily observe a worker’s talent on the job, the employer is less willing to pay a premium for high-expected-ability workers, regardless of the productivity of the occupation. I develop a frictionless matching equilibrium in which firms hire from a common pool of workers, and I show that matching is negative assortative between worker expected ability and the observability of talent on the job. In the second part of the paper, I develop an efficiency wage model, and show that occupations that are able to provide better information on worker effort optimally match with higher ability workers and pay higher wages. This mechanism indicates that in a unified labor market, the workers with high expected ability will match with jobs that have high productivity, poor on-the-job learning about worker ability, and strong information about worker effort. Workers with poor ex ante signals about ability become stuck in low-wage occupations, regardless of these workers’ actual productivity.