This paper examines the contract between a risk-neutral firm and its risk-averse employees, assuming that worker ability is privately learned by the firm after a period of employment. Employers in an external spot labor market attempt to infer worker quality from the observable actions taken by...

The authors examine an endogenous growth model in which market frictions are an integral part of the economic environment. Workers invest in education when young, which raises their productivity once employed. The level of schooling also acts as a key determinant of the rate of economic growth...