merit pay practices implications for pay performance relationships this study uses a monte carlo simulation to examine how the relationship between pay and performance is affected by the pay system measurement error in appraising performance the consistency of true performance over time and the rules governing promotion decisions the authors find that conventional merit systems achieve a considerably better link between pay and performance than does a bonus system with periodic adjustments in base wages a bonus system without periodic base wage adjustments also performs less well than conventional merit systems because merit systems benefit from the consistency of true performance over time one surprising finding is that even very substantial error in the measurement of performance has only a modest effect on the pay performance correlation

the value of hiring through employee referrals using personnel data from nine large firms in three industries call centers trucking and high tech we empirically assess the benefit to firms of hiring through employee referrals compared to nonreferred applicants referred applicants are more likely to be hired and more likely to accept offers even though referrals and nonreferrals have similar skill characteristics referred workers tend to have similar productivity compared to nonreferred workers on most measures but referred workers have lower accident rates in trucking and produce more patents in high tech referred workers are substantially less likely to quit and earn slightly higher wages than nonreferred workers in call centers and trucking the two industries for which we can calculate worker level profits referred workers yield substantially higher profits per worker than nonreferred workers these profit differences are driven by lower turnover and lower recruiting costs for referrals jel codes j24 m51 j30 j63

incentives productivity and labor contracts the relationship between age earnings profiles and worker incentives is examined by contrasting wage and salary workers with the self employed it is argued that the steepness of wage and salary workers age earnings profiles reflects the desire to provide work incentives to those workers since self employed workers do not face this agency problem they are used as a benchmark to gauge productivity empirical support of the proposition is provided and the effects of human capital accumulation are separated empirically from incentive effects the most important conclusion is that under some strong assumptions most of the slope in age earnings profiles is accounted for by the desire to provide incentives rather than by on the job training

labor market segmentation a cluster analysis of job groupings and barriers to entry real expenditures on public assistance programs have increased substantially in the past two decades as has real per capita income investments in a variety of education programs have risen and a number of jobs programs have been tried although there have been some gains for example a decline in the percentage of the population in poverty 31 474 a number of disparities persist unemployment remains at record levels and the prospect for sizable reductions in the unemployment rate seems quite small there are persistent differences between the mean household incomes of blacks and whites that have not narrowed at all during the past two decades 15 there is also a widespread perception that a disadvantaged segment of the u s population has no effective access to good jobs and if such persons get them they do not stay employed for long this means that many such adults are caught in a cycle of unemployment welfare dependency bad jobs and intermittent employment whereas there is nearly universal agreement that the persistent disparities in well being are undesirable there is considerable disagreement on what to do about this in part the disagreement stems from ignorance about the facts for example rigorous operational definitions of good and bad jobs have not been developed the notion that some persons do not have access to the good jobs is primarily based on anecdotes fortunately longitudinal data bases are now available that permit more rigorous empirical analysis of such issues

career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

does marriage really make men more productive this paper presents new descriptive evidence regarding marital pay premiums earned by white males longitudinal data indicate that wages rise after marriage and that cross sectional marriage premiums appear to result from a steepening of the earnings profile data from a company personnelfile that includes information on job grades and supervisor performance ratings reveal large marital status pay differences within a narrow range of occupations managers and professionals and environments a single firm married workers tend to be located in higher paying job grades there are very small pay differentials within grades married men receive higher performance ratings than single men as a result they are much more likely to be promoted controlling for rated performance however eliminates the promotion differential sanders korenman is an assistant professor of economics and public affairs at princeton university and is a faculty associate of the office of population research at princeton university and a research affiliate of the national bureau of economic research nber david neumark is an assistant professor of economics at the university of pennsylvania and a research affiliate of the nber korenman wishes to acknowledge the hewlett foundation and the harvard university center for population studies for financial support the authors are grateful to james medofffor making available an extract from the company personnelfile questions regarding data availability should be directed to professor james

the age wage profile and structural change in the japanese labor market for males 1964 1982 the focus of this paper is on the impact of demographic change and the catching up of japanese industry with the west technologically upon the age wage profile in japan over the period 1964 1982 we argue that changes on the supply side of the aggregate labor market especially the aging of the japanese labor force have had a profound influence on determining the relative wages of senior to junior workers but we also argue that structural shift on the demand side especially that associated with the slowing down of output growth as japan caught up with western economies was important in determining the age wage profile finally we offer a variety of statistical findings consistent with our thesis including new evidence on the dualistic structure of the japanese labor market

estimating the employer switching costs and wage responses of forward looking engineers this article estimates worker switching costs and how much the employer switching of experienced engineers responds to outside wage offers i use data on engineers across swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic programming discrete choice model of employer choice the differentiated firms are modeled in employer characteristic space and each firm has its own age wage profile a majority of engineers have moderately high switching costs and a minority of experienced workers are responsive to outside wage offers younger workers are more sensitive to outside wage offers

revisiting wage earnings and hours profiles abstract for the youngest cohorts whose entire working life can be observed hours start falling much earlier than wages wages do not fall if they fall at all until one s late 60s the data suggest that many workers start a smooth transition into retirement by working progressively fewer hours while still facing an upward sloping wage profile this pattern is not an artifact of staggered abrupt retirement or selection this evidence imposes restrictions on dynamic models of the aggregate economy and provide updated numerical profiles that can be readily used in quantitative macroeconomic analysis to incorporate this new pattern into aggregate models

a test of lazear s theory of delayed payment contracts according to lazear workers and firms enter into long term implicit contracts that discourage shirking and malfeasance by shifting compensation to the end of the contract such delayed payment contracts are less likely to occur in jobs in which it is comparatively simple to monitor worker effort this paper uses data from the national longitudinal survey and the dictionary of occupational titles to test that hypothesis in particular it tests whether jobs that involve repetitive tasks tend to be characterized by an absence of pensions mandatory retirement long job tenures and high wages for older workers

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

oligopsony and the distribution of wages we propose a simple model of wage dispersion arising from oligopsonistic competition in the labor market our model has workers who are equally able but who have heterogeneous preferences for non wage characteristics while employers have heterogeneous productivity characteristics we completely and explicitly solve for the equilibrium wage distribution and show that inside and outside forces interact in wage determination this interaction generates spillover effects of minimum wages in a manner which is consistent with the empirical evidence

detecting and removing discrimination under equal opportunities policies abstract this paper surveys part of the recent voluminous literature on the economics of discrimination focusing on two key questions first how should discrimination be measured and can in fact unambiguous estimates be derived as the basis for detecting where discrimination is present and setting in train measures to eliminate it second to what extent has the implementation of equal opportunities legislation improved the relative standing of women and minority workers in the labour force this section includes a discussion of the likely effects of recent changes in the law such as the equal value amendment in the uk or the introduction of comparable worth in the usa the survey concludes that our ability to detect discrimination at all precisely is still rudimentary and consequently policy measures are likely to be inefficient for this reason

do wages rise with job seniority a reassessment the authors provide new estimates of the return to job seniority using a dataset similar to that employed in joseph altonji and robert shakotko do wages rise with job seniority review of economic studies 1987 and robert topel specific capital mobility and wages journal of political economy 1991 they consider the strengths and weaknesses of these studies treatment of economy wide trends their dating conventions for tenure and wages their handling of wage observations that might span multiple jobs and their estimation approaches re estimation points to an effect often years of tenure on the log wage equal to 11 which is above the preferred estimate of altonji and shakotko but far below that of topel changes in earnings distributions and in the employment relationship motivate the examination of more recent data perhaps surprisingly the return to tenure has probably increased over time

golden cages for showy birds optimal switching costs in labor contracts under what circumstances do workers sign contracts with high quitting penalties our answer points to market transparency when the worker s performance is privately observed by the incumbent 4rm alternative employers face an adverse selection problem as a result e7cient separations can only take place through involuntary layo8s and there is no role for quitting fees in contrast when performance is public quitting fees are useful devices to appropriate the surplus from workers reallocation separations are amicable and take the form of quitting after downwardly renegotiating the fees qualitative features of contracts are independent of the distribution of ex post bargaining power the impact of switching costs on total welfare and its distribution depends on the degree of market transparency and the ex ante distribution of market power c

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

worth waiting for delayed compensation training and turnover in the united states and japan this article utilizes a rich data set on workers and their employers in the united states and japan to test several predictions of human capital theory the data set incorporates both prospective and retrospective measures of turnover includes multiple measures of training and provides a basis for calculating plant specific returns to tenure contrary to human capital theory there is no evidence that establishments with high levels of training have either high returns to tenure or low levels of turnover surprisingly establishments with high returns to tenure do not have low levels of turnover

an evaluation of vendor selection models from a total cost of ownership perspective abstract many different vendor selection models have been published in the purchasing literature however there has been no systematic approach to compare the relative efficiency of the systems in this paper we propose to use the concept of total cost of ownership as a basis for comparing vendor selection models we illustrate the comparison with a real life data set of the purchasing problem of ball bearings at cockerill sambre a belgian multinational company in the steel industry from a total cost of ownership perspective mathematical programming models outperform rating models and multiple item models generate better results than single item models for this specific case study

does work experience increase productivity a test of the on the job training hypothesis using data on wage claims investigations of a state labor department we test the proposition that work experience increases productivity productivity is measured as the fraction of wages an employer allegedly owes an employee which the investigator is able to collect the recovery of back wages is accomplished without the availability of an official enforcement mechanism the empirical estimates indicate that investigators become significantly more productive during the first six years of job experience while the uniqueness of this occupation prevents generalizing this finding the study raises some important methodological issues

a theory of trade secrets in firms this article provides a simple theoretical model of trade secrets in hierarchical firms a crucial assumption is that each manager has access to trade secrets pertaining to his own hierarchical level as well as to all lower levels the article explores some implications of this assumption for optimal degree of trade secrets accumulation and protection as well as for the wage structure in firms in addition the model implies that managers may have an incentive to overpay their subordinates and protect their firms trade secrets too much

high school graduation performance and wages using data from the panel study of income dynamics and a proprietary sample of semiskilled production workers this paper investigates the reasons for the discontinuous increase in wages associated with graduation from high school i find a discontinuous decrease in workers propensities to quit or be absent however i do not find that high school graduates have a comparative advantage in production jobs requiring more training nor in either sample is there a discontinuous increase in required training associated with the jobs held by high school graduates the wage premium associated with graduation from high school appears to be procyclical falling during slumps periods in which employers are likely to be hoarding labor and in which quits and absences are least important to firms there is also some evidence suggesting that prior quits have a larger effect on the wages of high school graduates than on the wages of high school dropouts

the signaling role of promotions further theory and empirical evidence an extensive theoretical literature investigates the role of promotions as a signal of worker ability we extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal labor market history of a medium sized firm in the financial services industry our results support signaling being important for understanding the differences between promotion practices concerning bachelor s and master s degree holders while the evidence concerning the importance of signaling for high school graduates and phds is mixed

a theory of wage and promotion dynamics inside firms we show that a framework that integrates job assignment human capital acquisition and learning captures several empirical findings concerning wage and promotion dynamics inside firms including the following first real wage decreases are not rare but demotions are second wage increases are serially correlated third promotions are associated with large wage increases fourth wage increases at promotion are small relative to the difference between average wages across levels of the job ladder fifth workers who receive large wage increases early in their stay at one level of the job ladder are promoted quickly to the next

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

promotion incentives in the public sector evidence from chinese schools abstract we provide evidence that promotion incentives influence the effort of public employees by studying china s system of promotions for teachers predictions from a tournament model of promotion are tested using retrospective panel data on primary and middle school teachers consistent with theory high wage increases for promotion are associated with better performance teachers increase effort in years leading up to promotion eligibility and they reduce effort if they are repeatedly passed over for promotion evaluation scores are positively associated with teacher time use and with student test scores diminishing concerns that evaluations are manipulated

a test of competitive labor market theory the wage structure among care assistants in the south of england this paper examines the structure of wages in a very specific labor market care assistants in residential homes for the elderly on england s sunshine coast this sector corresponds closely to economists notion of what should be a competitive labor market both because it has a large number of small firms undertaking a very homogeneous activity in a concentrated geographical area and because the workers are neither unionized nor covered by any minimum wage legislation so that there are effectively no external constraints on the wage setting process the authors find that the wage structure deviates in important respects from what would be expected in a competitive labor market in particular wage dispersion is small within firms but large between firms and the wage dispersion that is present does not seem to be closely related to workers productivity related characteristics a test rejects the hypothesis that unobserved labor quality can explain these findings

esteem and ignorance abstract we consider how the demand for esteem shapes behavior in the labor market when individuals care about what other people think of them especially fearing bad evaluations they may prefer jobs that hide information about their qualities we see how such a motive can contribute to explanations of wage stickiness high powered incentives search up or out contracts mandatory retirement and related issues

wages seniority and the demand for rising consumption profiles abstract in many occupations wages rise faster than productivity over the life cycle other authors have suggested a variety of explanations for this pattern we argue that these explanations fail for at least two occupations commercial airline pilots and intercity bus drivers we then explore an alternative explanation based on the assumption that satisfaction depends on not only the level of consumption but also its rate of change we argue that upward sloping wage profiles are an expedient substitute for personal savings as a means for achieving upward sloping consumpion profiles

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

estimating a firm s age productivity profile using the present value of workers earnings in hiring new workers risk neutral employers equate the present expected value of each worker s compensation to the present expected value of his her productivity data detailing how present expected compensation varies with the age of hire embed therefore information about how productivity varies with age this paper infers age productivity profiles using data on the present expected value of earnings of new hires of a fortune 1000 firm for each of the five occupation sex groups considered productivity falls with age with productivity exceeding earnings for young workers and vice versa for older workers

explicating factors for companies inclination towards corruption in operations and supply chain management an exploratory study in germany abstract the literature on corruption is rich in works focusing on individual and organizational aspects however existing research is void in studies that specifically deal with factors for a company s inclination towards corruption in operations and supply chain management the present paper fills this gap by explicating why some firms are more prone to corruption than others within this context it is our objective to explore the structural and organizational bases for companies especially their purchasing units to engage in corrupt business practices grounding our work in principal agent theory and the fraud triangle we suggest that the factors of organizational complexity corporate culture internationality and functional complexity all influence a firm s inclination towards corruption which in turn should manifest itself in the presence or absence of corruption control and prevention mechanisms this framework is tested with data collected from 104 purchasing managers in germany and implications for both theory and practice are highlighted

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

does the baseball labor market contradict the human capital model of investment this paper examines whether experienced players in major league baseball are paid more than their contribution to team revenue the author shows that wages increase with experience independently of productivity gains the results therefore contradict the human capital model of investment the evidence is in fact consistent with implicit contract models because most older players are relatively overpaid copyright 1992 by mit press

history based price discrimination and entry in markets with switching costs a welfare analysis abstract we analyze history based price discrimination in an asymmetric industry where an incumbent protected by switching costs faces an entrant who does not have access to information about consumers purchase histories we demonstrate that consumer surplus is higher with uniform pricing than with history based price discrimination we find that the entry decision is invariant to whether the incumbent implements history based pricing or uniform pricing this implies that the potential abuse of market dominance imposed by history based price discrimination is exploitation not exclusion finally we establish that the profit gain to the incumbent from history based pricing exceeds the associated loss to consumers

dynamic labor market competition and wage seniority abstract we design an overlapping generations model of the labor market experienced workers bear costs of switching employers whereas the segment for junior workers is horizontally differentiated the literature typically explains wage seniority premia with reference to productivity gains generated by the accumulation of worker experience or mechanisms associated with incomplete information in contrast this paper characterizes how the wage seniority premium depends on the relative intensities of competition in the markets for junior and senior workers in particular we show that a wage seniority premium may prevail even under circumstances where senior workers are less productive than junior workers

discontinuities in pension benefit formulas and the spot model of the labor market implications for financial economists in their analysis of corporate pension plans financial economists typically invoke the simplest and the most tractable model of the labor market this is the spot model where the worker s cash wage plus accruing pension benefit equals the value of his marginal product in each and every period this paper provides evidence against the empirical validity of the spot model and uses provisions common to most pension plans to do so these findings are relevant to the appropriate measurement of pension liabilities and thus to the present controversy surrounding the termination of overfunded plans and the recapture of surplus assets by the employer the existence of incentive effects ruled out by the spot model may help to unravel certain well known puzzles such as the failure of employers to fully fund their plans in spite of the tax advantages of doing so

determination of paths to vendor market efficiency using parallel coordinates representation a negotiation tool for buyers abstract this study demonstrates the use of data envelopment analysis for measuring vendor performance and efficiency an algorithm by inselberg is employed for determining points of vendor efficiency on multiple criteria this study then demonstrates how parallel coordinates graphical representation can be used to display the efficiency of vendors on multiple criteria and in so doing visually identify benchmark values on these criteria for negotiating with inefficient vendors an example of a firm purchasing in a jit manufacturing environment is used to illustrate this approach the results of this approach point to its flexibility for use in vendor negotiations

evidence on incentive effects of subjective performance evaluations the authors investigate the effect of managerial performance evaluation styles on employee work effort using panel data on 4 080 employees in a swiss unit of an international company for the period 1999 2002 they test two hypotheses using paid and unpaid overtime work as effort indicators the company applies two performance based remuneration mechanisms an individual surprise bonus and one in which salary is affected by the extent to which an individual has reached personalized targets the authors hypothesize that effort is higher in departments in which individual performance evaluations are more flexible over time as well as when surprise bonuses are used more frequently both hypotheses are supported and the estimated effects are substantial increases in rating flexibility or bonus payments by one standard deviation above the mean increase average overtime hours by more than 20 the findings are robust and suggest that surprise bonuses and flexible performance evaluations over time provide ef

seniority wages and productivity a turbulent decade why does a worker s wage tend to grow with seniority in the firm and what does this have to do with productivity two decades ago neoclassical labor economists thought that the theory of human capital provided a good answer to this question the last decade has however been one of puzzles and doubt at this point few would give an unambiguous answer and much hinges on the answer an attractive feature of human capital theory is that it yields a consistent and coherent explanation for several aspects of the employer employee relationship for example seniority systems layoff policies that vary with skill and the relationship between tenure and turnover can be explained in terms of human capital the fact that these explanations are connected leads however to something like a domino effect doubts about one cast doubt on the others if the human capital explanation for the wage seniority relationship is flawed then human capital explanations for other phenomena may require reevaluation in addition an important body of empirical research is built around the assumption that at any point in time a person s wage indicates the person s productivity included here is the extensive literature on the human capital earnings function as well as work on labor demand market discrimination and compensating differentials that assumption has become controversial in recent years in part because implicit contract theories predict that compensation will be redistributed over the period of the contract if a person s spot wage has little to do with spot productivity but rather is an instrument of a complex insurance or deferred compensation scheme then a reassessment of the empirical research may be necessary

the effects of human resource management on small firms productivity and employees wages this paper analyses whether employees and firms differently benefit from particular human resource hr practices the focus is on small firms that may be badly informed on the impact of hr practices on firm performance in this study on dutch pharmacies it is found that firms do not reward employees skills according to their contribution to firms productivity as 1 employees are over rewarded for their sector specific skills and under rewarded for the productivity enhancing effect of their computer skills and 2 employees work experience positively affects their wages but does not have real productivity effects moreover it is found that training employees in case of vacancy problems seems to be an adequate hr practice since it increases productivity without affecting the average wage level the opposite holds for offering higher wages to newly recruited employees furthermore we find that only the employees benefit from performance evaluation interviews whereas employing many employees by tem

employer seniority discrimination evidence from enterpreneurial occupational choice abstract this research examines the theories presented in the human capital literature by becker 1975 lazear 1979 1981 and others that the relative paths of earnings and value of marginal product henceforth vmp diverge over the worklife the findings support lazear s work incentive theory for professionals but reject its application to non professionals as predicted by orthodox human capital theory documentation is also developed that earnings for non professionals equal their vmp over the job life cycle on the other hand the analysis provides no support to becker s specific training model

post objective determination of weights of the evaluation factors in public procurement tenders in public procurement tenders the awarding criterion of the most economically advantageous bid employs weights to aggregate the numerical scores assigned to each proposal with respect to different evaluation factors typically these weights are fixed and subjectively set in advance methods which objectively determine the weights after the opening of the sealed bids on the basis of the most or least favorable weights for each proposal are developed post objective methods of weight determination are shown to enhance the integrity of the evaluation process and to limit corruption in a public tender the connection of data envelopment analysis which has been extensively applied to measure supplier efficiency with the developed methods is explored average least and most favorable weights are derived and optimal bidding strategies in this setting are presented

seniority rules and productivity an empirical test the primary purpose of this paper is to test empirically the effect of labor quality on short run manufacturing productivity in doing so the study makes major advances in two areas for the first time a job tenure function is estimated and a time series of job tenure in manufacturing is developed this estimated tenure series empirically verifies the use of seniority rules in the firm worker employment relationship having generated a tenure series the authors then test whether tenure enhances productivity in manufacturing the results clearly indicate that seniority rules have a statistically significant positive impact on productivity and the pattern of the seniority rules is reminiscent of a model where human capital has a specific component copyright 1989 by the london school of economics and political science

reconsidering pay dispersion s effect on the performance of interdependent work reconciling sorting and pay inequality pay dispersion in interdependent work settings is virtually universally argued to be detrimental to performance we contend however that these arguments often confound inequality with inequity t

wage tenure contracts in a frictional labour market firms strategies for recruitment and retention a common assumption in equilibrium search and matching models of the labour market is that each firm posts a wage to be paid to any worker hired this paper considers the implications of firms posting contracts in a random matching model with on the job search more complex contracts enable firms to address both recruitment and retention problems by for example increasing the wage with tenure the effect on the labour market is to reduce turnover below the level required for efficient matching of workers to firms copyright 2004 wiley blackwell

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

employee wage growth within the firm a deferred payment or human capital investment an analysis of the relationship between seniority and wages within a large us manufacturing firm is presented firm specific information is used to infer the ability level of employees knowledge of employee ability is essential in devising tests of the deferred payment scheme and human capital models of wage growth hypotheses regarding the ways in which the returns to seniority are expected to vary across the firm hierarchy were constructed and empirically tested the results appear to lend some support to the deferred payment scheme model and to be inconsistent with the predictions of the simple human captial model

competitive bidding in asymmetric multidimensional public procurement abstract in a multidimensional procurement auction such as a most economically advantageous tender asymmetric opponents with different cost structure and predetermined quality compete for the highest score which combines price and quality production inefficiency characterizes each tenderer we derive the equilibrium equations and boundary conditions for which closed form solutions are not available we compare the bidding behavior of any pair of rival tenderers and demonstrate that equilibrium prices critically depend on the comparison of the cost difference c with respect to the increment of score attribute s for the same production inefficiency a tenderer with a relatively higher c compared to s stands in weak competitive position and is forced to bid more aggressively we show how the opposing advantage of each bidder with respect to cost or score attribute induces the extent of competition under a different perspective we analyze bidding by a pair of tenderers for a given maximum score achieved when pricing is at cost our analysis reveals that the player with consistently higher percentage change of the probability of being more efficient than the rival is in a disadvantageous position and receives lower score in the awarding process our results are useful for tenderers in assessing their competitive position the findings enable contracting authorities to evaluate competition at the preliminary stage of design and to examine the effects of the awarding criterion on pricing

contingent payment auction mechanism in multidimensional procurement auctions abstract this paper considers the auctioning of an indivisible project among several suppliers who hold private information about their own efficiency type both quality and price need to be determined different from scoring auctions we present a new method i e contingent payment auction mechanism cpam which can effectively deal with the optimal procurement strategy in multidimensional procurement auctions cpam can implement the optimal mechanism for the buyer and is thus optimal among all possible procurement strategies cpam implies that the buyer should first design and announce a contingent payment function that specifies a payment for each possible quality level before the bidding begins compared to scoring auctions cpam has some advantages it does not require a special form of scoring rule and can be generalized in a more broad auction formats furthermore it can help us to solve the ex post moral hazard problem we consider two kinds of cpam for the cpam i is sensitive to different auction formats we come up with cpam ii which can improve the performance of cpam i broadly speaking cpam integrates the idea of dimension reduction from scoring auction into that of incentive contract design from contract theory to solve the problem of ex post moral hazard

oligopsony and monopsonistic competition in labor markets we argue that models of oligopsony or monopsonistic competition provide insights and explanation for many empirical phenomena in labor markets using a simple model with job differentiation and preference heterogeneity we illustrate how such models can be employed to explain the existence of wage dispersion the persistence of labor market discrimination market failures in the provision of training and the anomalous employment effects of minimum wages

promotion signaling gender and turnover new theory and evidence we extend promotion signaling theory to incorporate gender and across firm mobility within and across job levels evidence from worker firm linked finnish panel data supports our theory for some groups controlling for worker performance inferred from performance related pay within firm promotion probabilities are increasing and wage increases from promotion are decreasing in educational attainment for some educational groups with results stronger for first than for subsequent promotions women have lower promotion probabilities than men and a greater sensitivity of promotion probability to educational attainment across firm promotions are rare but bring wage increases exceeding those for internal promotions and across firm lateral moves

incentive compatible long term contracts and job rationing this article presents a model in which markets for long term contractual employment coexist with spot markets for labor assuming the absence of third party enforcement wage contracts are required to be incentive compatible as a consequence contract wages yield higher expected utility to the worker than spot market wages so that in equilibrium contractual long term jobs are rationed

delayed payment contracts and a firm s propensity to hire older workers there are jobs for which firms employ older workers but tend not to hire new older workers this may be attributable in part to implicit contracts that discourage worker shirking and malfeasance by shifting compensation to the end of the contract such delayed payment contracts can introduce a form of fixed costs into the employment relationship much as with hiring and training costs these fixed costs lead firms to hire primarily young long term workers while firms employ older workers workers who are serving out the last years of their contract they tend not to hire them this paper presents empirical evidence that is consistent with this argument

employer learning productivity and the earnings distribution evidence from performance measures two ubiquitous empirical regularities in pay distributions are that the variance of wages increases with experience and innovations in wage residuals have a large unpredictable component the leading explanations for these patterns are that over time either firms learn about worker productivity but productivity remains fixed or workers productivities themselves evolve heterogeneously in this paper we seek to disentangle these two models and place magnitudes on their relative importance we derive a dynamic model of learning and productivity that nests both models and allows them to coexist we estimate our model on a 20 year panel of pay and performance measures from a single large firm the baker gibbsholmstrom data incorporating performance measures yields two key innovations first the panel structure implies that we have repeat measures of correlates of productivity as opposed to the empirical evidence on employer learning which uses one fixed measure second we can separate productivity from pay whereas the previous literature on productivity evolution could not we find that both models are important in explaining the data however the predominant effect is that worker productivity evolves idiosyncratically over time implying firms must continuously learn about a moving target therefore while the majority of pay dispersion is driven by variation in individual productivity wages differ significantly from individual productivity at all experience levels due to imperfect information we believe this represents a significant reinterpretation of the empirical literature on employer learning

external recruitment and intrafirm mobility i introduction competition for promotion has a very strong effect on employees work incentive in the stereotypic internal labor market described in doeringer and piore 1985 there are only a limited number of ports of entry into a hierarchical firm or organization so that existing employees are insulated to a large extent from external competition in their climb up the corporate ladder however lazear 1992 and baker et al 1994a 1994b find extensive external recruitments at almost all grade levels in their studies of different u s corporations if the boundary between internal and external labor markets is not impervious then the choice between external recruitment and internal promotion in filling openings becomes an important personnel decision with interesting implications on incentives opening up the competition to external applicants discourages collusion among candidates as well as offers a quick channel for absorbing external talents however it also reduces the probability of promotion for existing workers and thus their incentive to exert with adverse effect on the firm s profit in chan 1996 i suggest that work incentive for the internal promotion candidates can be maintained if external competitors are handicapped in the contest such favoritism for existing employees implies that senior positions tend to be filled internally more often than not and that a worker is recruited from the outside only if he or she demonstrates a significant margin of superiority over the internal candidates this is consistent with the observations that external recruits account for only about 15 to 20 of all appointments to top management positions see denis and denis 1995 warner et al 1988 and that roughly the same percentage of chief executive officers ceos of large u s firms are outsiders see agrawal et al 2002 chan 1996 parrino 1997 the handicapping hypothesis of promotion suggests a dilemma in personnel decisions although handicapping external applicants provides incentive for existing employees it also increases the chance of inferior internal contestants being promoted to senior positions where sorting of workers by ability into different particularly senior positions is important efficiency within the organization is compromised this tension between sorting and maintaining work incentive is explored in tsoulouhas et al 2001 unfortunately the gain in realism with the incorporation of sorting is offset by ambiguity in most of the results the ability of the firm to precommit to future compensation the relative abilities of the internal and external contestants the cost of work effort and commonality within the firm and within the industry all have a role in determining the direction and magnitude of the handicap with different combinations of these factors resulting in very different outcomes whether one starts with the chan model or the tsoulouhas model empirical evidence is important to establish the significance of the competitive handicap against external candidates there has been no shortage of empirical investigations of the incentive effects of tournaments most follow one of two different analytic approaches one approach uses cross sectional or nonpanel data such as data on executive salary across firms gibbons and murphy 1990 leonard 1990 main et al 1993 or data from professional sports tournaments see for example ehrenberg 1990 few of these studies address the distinction between internal or external contestants agrawal et al 2002 is an exception it tests implications of the handicapping hypothesis derived in tsoulouhas et al 2001 by analyzing more than 1 000 ceo successions in large u s firms from 1974 to 1995 even though some of the results are also consistent with a traditional human capital interpretation and the key hypothesis can be derived from the tsoulouhas model only under certain conditions they offer some support for the existence and relevance of the competitive handicap against external contestants

why do wages increase with tenure on the job training and life cycle wage growth observed within firms empirical results in this paper indicate that firm specific wage growth occurs almost exclusively during periods of on the job training this finding suggests that within firm wage growth is mainly determined by contemporaneous productivity growth the results provide no evidence that contractual considerations are an important source of firm specific wage growth copyright 1989 by american economic association

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

asymmetric learning and the wage productivity relationship abstract a worker s current employer will typically acquire information concerning that worker s productivity that is not directly available to other potential employers a number of papers have considered this idea and argued that in such a setting these other firms will utilize the actions of the current employer as signals of productivity in this paper i argue that this perspective can explain the existence of puzzling results concerning the relationship between wage and productivity growth found in the classic studies of medoff and abraham 1980 1981

training and retirement patterns life cycle theory predicts that employers enter into implicit contracts with newly hired employees to ensure rent sharing and to decrease turnover after firm specific training investments typically these implicit contracts would include both upward sloping earning profiles and mandatory retirement in this article we empirically test the prediction that workers with firm specific skills are restrained in their options to continue working therefore they are more likely to retire at common mandatory retirement dates than those with general skills using the us national longitudinal survey of older men we find that workers who participated in firm specific training in their early careers do indeed retire earlier than those with general skills the results show that compulsory retirement plans force these older workers to retire when they reach the common mandatory retirement age of 65 the results presented in this article are highly relevant for public policies in european and other industrialized cou

why do wage profiles slope upwards tests of the general human capital model this article tests the implications of the general human capital that i at the individual level there is a negative relationship between the initial wage level and wage growth of inexperienced workers and ii at the market level the ratio of the present values of wage profiles of investors and otherwise identical noninvestors equals one we find a negative relationship between initial wage levels and wage growth even after correcting for negative biases in existing estimates of this relationship we also find that the ratio of the present values of rising wage profiles to flat wage profiles is generally close to one

internal labour markets causes and consequences the paper analyzes the causes and consequences of internal labor market rules that yield long tenure promotion from within seniority pensions and due process in dismissals about half the workforce are estimated to be in such markets competitive reasons for internal labor markets as a response to specific training and arms length relationships between workers and firms are surveyed these reasons are found to be consistent with the pattern of internal labor markets among non union firms however some internal labor markets e g among small unionized firms are probably a response to union pressure and government regulations in these circumstances low labor mobility could pose problems for policy copyright 1991 by oxford university press

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

gender discrimination without gender difference theory and policy responses abstract this paper provides an explanation for the continued existence of gender discrimination in competitive labour markets and analyzes the effects of policies designed to alleviate it unlike previous explanations of gender discrimination this theory arises from the interaction between women and men within the household and does not rely on inherent asymmetries between women and men even though discrimination is seen to be related to factors which can be thought external to the labour market such as higher job turnover and labour market exit rates for women policies which target only labour market outcomes and do not deal with external factors can both lead to reduced discrimination and also alter external factors thereby reducing discrimination further however policies aimed at external factors will in general be less effective in reducing discrimination unless combined with more direct policies

the effect of mandatory retirement on earnings profiles in japan using data from the japanese basic survey on wage structure for 1981 and 1986 the authors estimate the effect of the age of mandatory retirement on the rate of growth of earnings with job tenure i

the effects of local market conditions on two pay setting systems in the federal sector the authors examine the sensitivity of wage setting in two federal pay systems the general schedule gs system covering white collar workers and the federal wage system fws covering blue coll

pricing with customer recognition abstract this article studies the dynamic effects of behaviour based price discrimination and customer recognition in a duopolistic market where the distribution of consumers preferences is discrete consumers are myopic and firms are forward looking in the static and first period equilibrium firms choose prices with mixed strategies when price discrimination is allowed forward looking firms have an incentive to avoid customer recognition thus the probability that both will have positive first period sales decreases as they become more patient furthermore an asymmetric equilibrium sometimes exists yielding a 100 0 division of the first period sales as a whole price discrimination is bad for profits but good for consumer surplus and welfare

self enforcing wage contracts we examine long term wage contracts between a risk neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage a self enforcing contract is one in which neither party ever has an incentive to renege in the optimum self enforcing contract wages are sticky they are less variable than spot market wages and positively serially correlated they are updated by a simple rule around each spot wage is a time invariant interval and the contract wage changes each period by the smallest amount necessary to bring it into the current interval

some evidence on the relationship between performance related pay and the shape of the experience earnings profile we investigate the relationship between performance related pay prp and the shape of workers experience earnings profiles in particular we argue that the slope of the profile depends critically upon the degree of equity held by workers in their enterprise as measured by the extent of prp the implication is that the slope of the profile for prp workers falls between those of their zero equity fixed wage and one hundred per cent equity self employed counterparts our empirical analysis of three british data sets namely the british social attitudes survey the british household panel survey and the british family expenditure survey supports this prior in this paper we explore the shape of the experience earnings profile for individuals employed under different types of contracts fixed wage performance related pay prp and self employment contracts we follow lazear 1979 1981 and lazear and moore 1984 in hypothesizing that the slope of the experience earnings profile reflects agency costs and the reduction thereof with increased agency costs inducing steeper profiles if monitoring costs are high firms may implement compensation schemes designed to encourage employees to self select behavior in the firms interests one such scheme defers a substantial amount of compensation until the later years of tenure the resulting experience earnings profile provides a penalty for shirking lazear and moore 1984 we therefore presume that the profiles of workers employed under fixed wage contracts are steeper than those of self employees for whom the issue of agency does not arise because of the duality of principal and owner lazear and moore 1984 the interesting case is that of workers employed under prp if such contracts represent a hybrid between fixed wage and self employment then one would expect their experience earnings profiles to lie somewhere between these two extreme