Chapter Learning Objectives

  • Better appreciate the profoundly dynamic nature of the U.S. labor market in general and be aware of the immense monthly flows that take place as workers move into and out of employment in particular.
  • Recognize that the hiring decision is complicated because workers differ greatly in their abilities and employers generally possess imperfect information at the time of hiring.
  • Explain the principles by which the market allocates workers (who differ in their abilities) to employers (who differ in their skill requirements).
  • Understand how workers can use their educational credentials to signal their abilities to prospective employers and how employers can design their job packages to screen workers, thereby eliciting this information from them.
  • Understand the basic tenets of the risky-worker hypothesis.