Internal labor markets, asymmetric information and competitive wage dynamics

My dissertation examines the effect of differential information between current and potential employers on employment outcomes in competitive labor markets. Previous research found that when employers have better information regarding their workers' productivity than potential employers, potential employers use job assignment to infer an employed worker's qualifications. As a result, assignment of workers to jobs is inefficient. I use a similar framework, but consider the effect of offer matching and find that employers assign workers to jobs efficiently.; In the model I develop and in existing literature in which workers are price takers, wages are attached to publicly observable characteristics (such as job assignment). High and low ability workers in the same job earn the same wages. This result prompts a question: Why are high productivity workers not able to capture a larger portion of the surplus than less productive workers? I develop a bargaining model that addresses this question. The bargaining between the current employer and worker is driven by asymmetric information between current employer and potential employers. The novel feature is the information externality. If the bargaining outcome depends on the output produced, wage reveals information to outside firms and affects future payoffs.; This model generates a semi-separating equilibrium. More able workers compensate their employers by earning lower wages in order to elicit high future wage offers from outside firms. Their wages depend on their actual productivity. Outside firms observe wages and infer these workers' productivity and make offers equal to the worker's productivity. Less able workers for whom it is too costly to reveal ability through wages, earn a wage below their productivity in all periods, and never quit. This model of bargaining generates predictions consistent with several regularities in wage patterns of managers within firms.; I extend the bargaining model and develop an empirical model. I focus on the importance of asymmetric information to determination of age-earnings profiles in internal labor market, and the relative importance of firm-specific skills versus general skills in determining wages. The model allows to separately identify and structurally estimate firm-specific and general human capital production function parameters, and the distribution of the underlying ability parameters in the different job levels.