Essays on Talent Discovery and Allocation

This doctoral dissertation studies the impact of labor market competition on talent discovery and allocation across firms and across tasks inside a firm. The first essay shows that competition for talent pushes firms to allocate tasks among workers in an inefficient way and thereby reduce retention costs. The author shows that a firm organized as an equity-partnership allocates tasks efficiently. In this framework, partners get cash flow and control rights and are retained in equilibrium by means of a "eat-what-you-kill" sharing rule. More efficient talent allocation constitutes a new rationale for the widespread presence of partnerships in human-capital intensive industries. The second essay shows that when promotions make workers more attractive in the labor market, firms trade off productivity against retention costs. If workers exert firm-specific training effort, firms that cannot commit to promotion rules promote fewer workers than efficient. If firms can commit to promotion bars, they promote efficiently. If workers acquire portable training, this increases retention costs. Firms that cannot commit to promotion bars will set them inefficiently high and workers are discouraged from training when competition for talent is fierce. If firms commit to promotion bars, they set them lower than without commitment providing strong incentives for workers to acquire portable training. However, in this case the promotion bar may be set lower than the efficient benchmark. The third essay is coauthored with Marco Pagano and analyzes workers' job selection, considering that in talent-intensive jobs, workers' quality is revealed by their performance. More precise information about worker talent enhances productivity and earnings, but also increases layoff risk. Firms cannot insure workers against this risk if they compete fiercely for talent. In this case, the more risk-averse workers will choose less talent-revealing jobs. This lowers expected productivity and salaries. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries and investment in education.