Raids and Imitation

Abstract

Many job changes occur without intervening spells of unemployment. A model is constructed in an attempt to understand this phenomenon. It implies that the best workers are hired away first because, with imperfect information, prices do not fully adjust for quality. Thus, there develops stigma associated with failing to receive outside offers. The force of the stigma, which affects wages, depends upon the likelihood of discovering a worker's ability, the size of the market, and the speed of diffusion of information. In some occupations, it implies that there quickly develop pronounced differences in the treatment of raided and unraided workers. A consequence is a theory of occupational wage dispersion. The Peter Principle - that workers are promoted to a level of incompetence - is a direct implication.The model can be applied to product markets as well to explain the relationship between price and time on the shelf.