# 17-116/VII (2017-12-08)

Author(s)
Thomas (T.L.P.R.) Peeters, Erasmus School of Economics, ERIM; Tinbergen Institute, The Netherlands; Stefan Szymanski, University of Michigan; Marko Terviö, Aalto University
Keywords:
hiring, labor market entrants, worker ability, European football
JEL codes:
M51, J63, J24, Z22

We study hiring in a labor market where worker ability can only be observed on-the-job, but quickly becomes public information after labor market entry. We show that firms in these markets have a socially inefficient incentive to hire low talented, experienced workers instead of more promising labor market entrants, either when an extremely poor hire may bankrupt the firm, or when workers cannot commit to long-term contracts. In a dataset covering 38 years of hiring in the English labor market for football managers, we find that in around one quarter of all cases, where a firm hires an experienced worker, this experienced worker has an estimated ability below the average ability of recent labor market entrants. We argue this hiring behavior is inefficient, because it has persistently depressed the average ability of the active manager labor force over our sample period.