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Hierarchical sorting and learning costs

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Garicano and Rossi-Hansberg [Garicano, L., Rossi-Hansberg, E., 2005. Organization and Inequality in a Knowledge Economy. NBER Working Paper 11458] show that knowledge-based hierarchies are characterized by positive sorting between workers and managers when knowledge acquisition takes place before production. We extend the analysis and find that complementarities between manager and worker skill are even stronger when knowledge is acquired on the job. We then examine empirically the existence of sorting in law firms along the dimensions of cognitive ability and experience. We find strong evidence of positive sorting by cognitive ability, as proxied by the quality of the law school attended, but little evidence of sorting by experience, suggesting little substitutability between cognitive ability and experience.

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