- Financial-Sector Labor Markets •
- adverse selection •
We develop a model of the market for knowledge workers in which talent is discovered on the job. In the model, asymmetric information and firm-specific human capital combine to generate several predictions relating firm heterogeneity to talent discovery and poaching.
We show that high-quality (i.e., large and high-productivity) firms are more likely to become talent poachers, while lower quality firms are more likely to invest in talent discovery. Job-to-job flows are adversely selected, which implies that internally promoted managers are more productive than those who are externally promoted. The model generates several additional predictions linking firm heterogeneity to the distribution of managerial talent, productivity, compensation, and promotions.