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

Abstract

Understanding the accumulation of match-specific capital is crucial in shedding light on the reasons for the prevalence of long-term employ- ment relationships and on the welfare consequences of turnover in the labor market. One of the most important source of match-specific capital is human capital acquired through match-specific learning. Such learn- ing 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 explana- tions. I show that it is possible to distinguish the two explanations given turnover data on employing firms coupled with data on workers. Such data now exist in the form of matched employer-employee data sets. I use a matched French 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 could be present in the first few months of an employment relationship, learning about match quality dominates at tenures above half a year. This finding has important consequences for economists' 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.