-
- Managing Skills and Signals: Firm Training with Career-Concerned Workers (w/ Alvaro J. Name-Correa), 2025
We study how firms design training content to manage the skill distribution of career-concerned workers. Core training builds common skills, leveling the playing field for promotions, whereas idiosyncratic training (e.g., mentorship) builds unique skills that improve the signaling value of promotions. We show that firms optimally bias the mix toward core training to attract workers and boost overall performance, despite dampening effort. Unlike the existing work, firms over-certify training to amplify career concerns and may sponsor general (transferable) training in competitive labor markets. We also analyze how promotional pay gaps, asymmetric information about performance, and cohort size affect training design.
Contract theory generally prescribes Relative Performance Evaluation (RPE) to filter out similar uncertainties and induce competition among agents. This paper argues that the RPE logic fails when agents are implicitly motivated by career concerns, such as the prospect of future employment and promotions based on perceived talents. This is because RPE can also filter out agents’ similar talents they aim to demonstrate. Collective Performance Evaluation can motivate career-concerned agents better by positively tying their reputations. The paper characterizes the optimal performance evaluations and how they vary with agents’ prior reputations. The findings can explain the RPE ban in government agencies.
