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The Survival of Mediocre Superstars in the Labor Market
[High Wage Workers and High Wage Firms]

Author

Listed:
  • Thomas Peeters
  • Stefan Szymanski
  • Marko Terviö
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).

Suggested Citation

  • Thomas Peeters & Stefan Szymanski & Marko Terviö, 2022. "The Survival of Mediocre Superstars in the Labor Market [High Wage Workers and High Wage Firms]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 38(3), pages 840-888.
    • Handle: RePEc:oup:jleorg:v:38:y:2022:i:3:p:840-888.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewab035
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    Citations

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    Cited by:

    1. Rachel Scarfe & Carl Singleton & Adesola Sunmoni & Paul Telemo, 2024. "The age‐wage‐productivity puzzle: Evidence from the careers of top earners," Economic Inquiry, Western Economic Association International, vol. 62(2), pages 584-606, April.
    2. van Ours, Jan C. & Peeters, Thomas, 2022. "International Assortative Matching in the European Labor Market," CEPR Discussion Papers 17630, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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