If all workers were identical, or if all firms were perfectly informed about the productivity of workers, and both firms and workers were risk neutral, a firm would respond to a fall in the value of a worker's output by cutting the worker's wage. If the value of the worker's marginal product were greater elsewhere (or if his utility from unemployment exceeded the wage), the worker would quit. However, if a firm is imperfectly informed about the productivity of its workers, the firm would care about which workers would be induced to quit by a wage cut. The firm most wants to retain - workers whose productivity exceeds their wage. In this article I have focused on how unobserved worker heterogenity can explain persistent of job queues - involuntary long term unemployment - and can cause a misallocation of workers between the industrial sector and the non - industrial sector or unemployment.