The implications of occupational self-selection in a labor market with moral hazard and asymmetric information

In this dissertation, I analyze the consequences of occupational self-selection in a labor market with moral hazard and asymmetric information. I provide a structural estimation of a shirking model with occupational self-selection and investigate how well it explains the differences in wages and dismissal rates observed in white collar and blue collar occupations. This dissertation consists of two papers. In the first paper, I present a structural model of occupational self-selection in a labor market characterized by asymmetric information and moral hazard. The model demonstrates that in such a labor market, when making occupational choices, workers take into account their probability of shirking and the monitoring intensity in each occupation. The estimation results, based on data from the National Longitudinal Survey of Youth, find evidence of occupational self-selection in the labor market such that the distribution of worker abilities in an occupation differs in a systematic way from the distribution in the population as a whole. Furthermore, self-selection of workers significantly contributes to the differences in dismissal rates and wages across occupations. In particular, the results of this paper show that workers' self-selection leads to higher wages and lower dismissal rates in the white collar occupation and lower wages and higher dismissal rates in the blue collar occupation compared to an economy in which workers are randomly assigned to occupations.; In the second paper, I consider three extensions to the original self-selection model presented in Chapter 3. Workers are assumed to accumulate human capital and experience dismissals that are exogenous to their behavior. Results suggest that adding human capital accumulation to the original model enhances the model's fit to the white collar wage data but worsens its fit to observed dismissal rates in both occupations. The model that includes both human capital accumulation and exogenous dismissals explain the observed wage and dismissal dynamics the best. Human capital accumulation is responsible for most of the wage growth observed in the white collar occupation whereas the direct effect of human capital on the blue collar wage growth is not substantial.