Volume 33, Number 1 (Winter) 1998: Symposium on Microeconomic Methods

Neal, Derek. 1998. "The Link Between Ability and  Specialization: An Explanation for Observed Correlations  Between Wages and Mobility  Rates." Journal of Human Resources 33(1):173-200.

Wage levels and turnover rates are negatively correlated across types of employment, and this fact is often interpreted as evidence that high-wage jobs are rationed. A simple training model illustrates, however, that this correlation may arise because able workers have an incentive to choose highly specialized jobs. In any job, the most able workers possess the most valuable stock of specific skills and therefore face the highest mobility costs. Thus, able workers may have a comparative advantage in specialized employments.

Data from the national Longitudinal Survey of Youth provide an opportunity to evaluate the merits of the training model developed here. Data on worker training and mobility provide support for several implications of the model The model also provides new ways to interpret existing results in the literature on interindustry wage differentials.

Derek Neal is an associate professor of economics at the University of Chicago, a faculty research fellow at the National Bureau of Economic Research, and a faculty affiliate of the Joint Center for Poverty Research. He gratefully acknowledges support by the Sara Scaife Foundation from its grant to the George Stigler Center for the Study of the Economy and the State. He also thanks Steven Stern, William Johnson, Gary Becker, Sherwin Rosen, and especially Robert Topel and Joseph Hotz for helpful comments. The data used in this article can be obtained beginning May 1998 through February 2001 from Derek Neal, 1126 E 59th St, Chicago, IL 60637.