A Test of Adverse Selection in the Market for Experienced Workers
We show that in labor market models with adverse selection, otherwise observationally equivalent workers will experience less wage growth following a period in which they change jobs than following a period in which they do not. We find little or no evidence to support this prediction. In most specifications the coefficient has the opposite sign, sometimes statistically significantly so. When consistent with the prediction, the estimated effects are small and statistically insignificant. We consistently reject large effects in the predicted direction. We argue informally that our results are also problematic for a broader class of models of competitive labor markets.
We are grateful to Costas Cavounidis, Lisa Kahn and Michael Waldman for helpful discussions and to participants in seminars at Boston University, the IZA, Harvard, HEC Montreal, and Northeastern. This research was funded in part by the National Science Foundation under grant SES-1260197. The usual caveat applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.