The Survival of Mediocre Superstars in the Labor Market

Thomas Peeters, Stefan Szymanski, Marko Tervio

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)
61 Downloads (Pure)

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).
Original languageEnglish
Pages (from-to)840-888
Number of pages49
JournalJournal of Law, Economics, and Organization
Volume38
Issue number3
DOIs
Publication statusPublished - 1 Nov 2022

Bibliographical note

Publisher Copyright:
© 2021 The Author(s). Published by Oxford University Press on behalf of Yale University.

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