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

endogenous inequality in integrated labor markets with two sided search we consider a market with red and green workers where labels are payoff irrelevant workers may acquire skills skilled workers search for vacancies while firms search for workers a unique symmetric equilibrium exists in which color is irrelevant there are also asymmetric equilibria in which firms search only for green workers more green than red workers acquire skills skilled green workers receive higher wages and the unemployment rate is higher among skilled red workers discrimination between ex ante identical individuals arises in equilibrium and yet firms have perfect information about their workers and strictly prefer to hire minority workers

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

belief flipping in a dynamic model of statistical discrimination abstract the literature on statistical discrimination shows that ex ante identical groups may be differentially treated in discriminatory equilibria this paper constructs a dynamic model of statistical discrimination and explores what happens to the individuals who nonetheless overcome the initial discrimination if an employer discriminates against a group of workers in her initial hiring she may actually favor the successful members of that group when she promotes from within the firm the worker s welfare implications i e who benefits from an employer s discriminatory hiring practices are unclear even though agents face discrimination initially some may be better off because of it

agent compensation and the limits of bonding agents in positions of trust may engage in malfeasance which is difficult to detect this paper develops a model in which employers seek to control malfeasance by paying wages contingent on imperfect monitoring and agents may be required to pay entry fees or post bonds we conclude that entry fees which exceed agents assets are ineffective in controlling malfeasance as a result conditions exist in which it is optimal to pay agents more than their opportunity cost such conditions lead to an excess supply of applicants and allow employers to engage in discrimination at zero cost to themselves

life cycle equilibrium unemployment this paper extends the job creation job destruction approach to the labor market to take into account a deterministic finite horizon as hirings and separations depend on the time over which investment costs can be recouped the life cycle setting implies age differentiated labor market flows while search by the unemployed falls with age the separation rate is rather u shaped over the life cycle worker heterogeneity in the context of undirected search implies an intergenerational externality which is not eliminated by the hosios condition we show that age specific policies are required to attain the first best allocation

parental education labor market experience and earnings new wine in an old bottle evidence from us data suggests that increases in parental education significantly steepen the slope of male experience earnings profiles during early career years other things equal

an investigation of the gains from commitment in monetary policy this paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility in which commitment and discretion become special cases of what we call quasi commitment the monetary policy authority is assumed to formulate optimal commitment plans to be tempted to renege on them and to succumb to this temptation with a constant exogenous probability known to the private sector by interpreting this probability as a continuous measure of the lack of credibility of the monetary policy authority we investigate the welfare effect of a marginal increase in credibility our main finding is that in a simple model of the monetary transmission mechanism most of the gains from commitment accrue at relatively low levels of credibility in our benchmark calibration a commitment expected to last for only 6 quarters is enough to bridge 75 of the welfare gap between discretion and commitment this seems to justify the well known concern of monetary policy makers about their credibility even in a world with limited access to commitment technologies

aging and pensions in general equilibrium labor market imperfections matter we re examine the effects of population aging and pension reforms in an olg model with labor market frictions the most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate exogenous shocks such as aging leading to lower interest rates also imply lower equilibrium unemployment rates because lower capital costs stimulate labor demand and induce firms to advertise more vacancies these effects may be reinforced by increases in the participation rate of older workers induced by the higher wage rates and the larger probability of finding a job these results imply that neglecting labor market frictions and employment rate dynamics may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate

on the job search and moral hazard we analyze the interaction between intertemporal incentive contracts and search frictions associated with on the job search in our model agency problems call for wage contracts with deferred compensation at the same time workers do on the job search deferred compensation improves workers incentives to exert effort but distorts their on the job search decisions we show that deferred compensation is less attractive when the value to the worker firm pair of on the job search is high moreover the interplay between search frictions and wage contracts creates feedback effects if firms in equilibrium use contracts with deferred compensation fewer firms with vacancies enter the on the job search market and this in turn reduces the distortions created by deferred compensation these feedback effects between the incentive contracts used and the activity level in the search markets can lead to multiple equilibria a low turnover equilibrium where firms use deferred compensation and a high turnover equilibrium where they do not furthermore the model predicts that firms are more likely to use deferred compensation when search frictions are high and when the gains from on the job search are small

work norms and involuntary unemployment consider the organizational environment of labor management wherein the firm can measure the average performance i e group work norm of its employees but has difficulty in observing the individual worker s performance within the group accordingly the worker s remuneration is based on the observed group norm because of the way in which workers interact among themselves in setting work norms there results an undersupply of effort from a given workforce size furthermore the group work norm is shown to be negatively correlated with the size of the workforce consequently short run unemployment can arise with involuntary features the paper also explores the effectiveness of alternative remuneration schemes in mitigating the inefficiency associated with the group work norm setting

delegation time inconsistency and sustainable equilibrium this paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government s strategy the method of chari and kehoe 1990 sustainable plans journal of political economy 98 4 783 802 is applied to characterize the entire set of sustainable outcomes countering mccallum s 1995 two fallacies concerning central bank independence american economic review 85 2 207 211 second fallacy delegation is able to eliminate the time inconsistency problem with the commitment policy being sustained under discretion for any intertemporal discount rate

crucial issues concerning central bank independence abstract this paper argues first that it is inappropriate to presume that central banks will in the absence of any tangible precommitment technology inevitably behave in a discretionary fashion that implies an inflationary bias furthermore there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it several implications are discussed

do stronger age discrimination laws make social security reforms more effective supply side social security reforms to increase employment and delay benefit claiming among older individuals may be frustrated by age discrimination we test for policy complementarities between supply side social security reforms and demand side efforts to deter age discrimination specifically studying whether stronger state level age discrimination protections enhanced the impact of the increases in the social security full retirement age fra that occurred in the past decade the evidence indicates that for older individuals who were caught by the increase in the fra benefit claiming reductions and employment increases were sharper in states with stronger age discrimination protections

age discrimination laws and labor market efficiency in lazear s model of long term incentive contracts age discrimina tion laws barring age based involuntary terminations preclude such contracts reducing efficiency alternatively such laws may serve as precommitment devices for these contracts without pre venting firms from offering strong financial incentives to induce retirement at specific ages in this case age discrimination laws may encourage lazear contracts hence increasing efficiency we assess evidence on these alternative interpretations using variation in state and federal age discrimination laws the evidence indicates that age discrimination laws steepen age earnings profiles for co horts entering the labor market suggesting that these laws encour age the use of lazear contracts

the economics of vocation or why is a badly paid nurse a good nurse abstract given the longstanding shortage of nurses in many jurisdictions why could not nursing wages be raised to attract more people into the profession we tell a story in which the status of nursing as a vocation implies that increasing wages reduces the average quality of applicants attracted the underlying mechanism accords with the notion that increasing wages might attract the wrong sort of people into the profession and highlights an in efficiency wage mechanism particular to vocations which makes wages sticky up wards the analysis has implications for job design in vocation based sectors such as nursing and teaching

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

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

statistical discrimination with peer effects can integration eliminate negative stereotypes we introduce peer effects in the costs of human capital acquisition into a model of statistical dis crimination in labour markets this creates a link between the level of segregation in social networks and racial disparities in job assignment and wages we show that this relationship is characterized by disconti nuities there is a threshold level of segregation below which negative stereotypes become unsustainable and steady state skill levels can change dramatically this change can work in either direction skill levels may either rise or fall in both groups vvtiich of these outcomes arises depends on the population share of the disadvantaged group and on the distribution of the costs of human capital investments we also examine the effects of affirmative action policies in the presence of peer effects and provide conditions under which such policies eliminate negative stereotypes

credibility of optimal monetary delegation while optimal monetary policy is subject to a credibility problem it is often argued that the government should appoint a central banker whose incentives differ from the government s the author argues however that such delegation does not overcome credibility problems given that delegation is discretionary and without costs reappointment costs of delegation are shown to improve suboptimal outcomes but credibility of optimal monetary policy turns out be worsened at best delegation therefore has no effects on credibility but only if reappointment has no costs copyright 1997 by american economic association

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

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

playing for keeps pay and performance in the nba i introduction a basic insight of agency theory is that properly designed incentive contracts can align the interests of agents with those of the principal and recent empirical work shows that workers do indeed respond to financial incentives 1 contractual incentives however are not the only force motivating workers workers also have incentives to vary effort at different points of their contract cycle to increase effort just before a new contract is signed to lock in a more lucrative deal and then reduce it after a multi year contract is secured these types of contract related incentives create clear moral hazard problems but have received little empirical attention the motivating hypothesis in this paper is that imperfect information and multi year contracts create an implicit incentive for workers to strategically alter effort over the contract cycle in the year prior to signing the contract their contract year workers may exert above average effort to convince employers that they are high quality and thus raise long term compensation once the contract is signed however workers may exert less effort because wages are effectively independent of contemporaneous performance an empirical difficulty is that this moral hazard may be obscured by two factors a selection effect may lead only high quality workers to receive contracts and career concerns may provide additional incentives and dampen the post contract decline 2 this paper employs a unique dataset for professional basketball players in the national basketball association nba from 1988 to 2002 to examine the contract related incentive effects the data include contract information year signed length of contract and value of contract for every active player in 2000 and performance measures points scored rebounds assists etc throughout each player s career contract related incentive effects are estimated from changes in individual performance over the contract cycle if performance systematically improves just before signing a new contract and falls afterward some of the fluctuation is likely due to contract related incentives i also examine the traditional link between pay and past performance which is necessary for these types of incentives to be relevant the critical advantage of this data is the detailed information on individual performance individual contract status and individual pay 3 in contrast previous work on individual incentives for example lazear 2000 paarsch and shearer 2000 and shearer 2004 studied changes infirmwide compensation plans while the empirical literature on executive pay and performance for example murphy 1985 1986 jensen and murphy 1990 gibbons and murphy 1992 kaplan 1994 and hall and liebman 1998 typically examined the link between individual pay and firm performance the individual level data constructed here have the critical variation across individuals which is needed to identify the impact of these contract related incentive effects the empirical work begins with a test of the link between pay and performance which is necessary for contract related incentives to be operational not surprisingly better performers in the nba are rewarded with higher salaries and longer contracts more relevant to the incentive issue players are strongly rewarded for improvements in performance in their contract year a one point increase in a player s scoring average for example is associated with an annual salary increase of over 300 000 this link provides the crucial motivation for the hypothesis that players will exert additional effort in their contract year to lock in the better contracts that they expect to follow the data then provide strong evidence of contract related incentive effects as overall performance does in fact improve relative to a player s long run average in the contract year and then declines after a long run contract is signed

credibility of optimal monetary delegation comment in his recent paper in the american economic review jensen 1997 argues that delegation of monetary policy to an independent central bank which acts as an agent for the government does not mitigate the problem of time inconsistency but merely relocates it

unemployment and the efficiency wage hypothesis there has been much recent discussion of the reasons why prices in certain markets and in particular in labour markets may not adjust to eliminate excess supply the absence of speedy adjustment of prices is an essential feature of the recent models of disequilibrium macroeconomics but for the most part no explanation for this absence is provided from within those models one explanation that has been around in the literature for some time and has been receiving increasing attention recently is the efficiency wage hypothesis initially applied to developing economies see leibenstein i957 it has more recently been adapted to developed economies by weiss i 980 and used in the context of a keynesian macroeconomic model by hart i 980 similar concepts have been applied to the credit market by stiglitz and weiss i98i the purpose of the present paper is to explore further the conditions under which the notion of an efficiency wage is applicable and can provide an explanation of involuntary unemployment the essential feature of the efficiency wage hypothesis is that the productivity of a firm s employees increases as their wage is increased at least over an economically relevant part of its range if the wage paid by the firm is denoted by w the number of employees by l and the productivity of each employee by p w where p w o then the effective labour force of the firm e can be represented by

canadian jobs and firm size do smaller firms pay less even after controlling for observable workers characteristics and for occupation and industry specific effects a substantial wage differential remains between large and small firms what underlies the remaining wage differential is unclear direct evidence on pension plan coverage and on lay off rates by firm size is inconsistent with the bad working conditions hypothesis the union avoidance hypothesis does not seem to explain an important portion o f the wage differential as suggested by efficiency wage models part of the remaining wage differential may be due to firms heterogeneity similarly perhaps large firms pay higher wages simply partly beca use they employ workers with more unobserved abilities because differen t explanations of the wage differential may lead to different policy implications determining the source of the wage firm size effect is an important question for future research

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

macroeconomic adjustment with segmented labor markets this paper analyzes the macroeconomic effects of fiscal and labor market policies in a developing economy with an informal sector and a heterogeneous work force a permanent reduction in government spending on nontraded goods leads in the long run to a deprecia tion of the real exchange rate a fall in the market clearing wage for unskilled labor an increase in output of traded goods and a lower stock of net foreign assets a permanent reduction in the minimum wage improves competitiveness and expands the formal sector the effect of changes in unemployment benefits are also analyzed q 1999 elsevier science

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

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

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

a language theory of discrimination any advanced industrial society is composed of a number of speech communities with different verbal and nonverbal languages in particular in the united states blacks and whites and men and women have sharply differing methods of speaking and listening this paper develops a model in which people can only work together if they speak the same language and in which it is costly to learn a second language the competitive market will tend to minimize communication through segregation but if interaction is required the cost will be borne by the minority a number of nontrivial predictions are derived from the model

involuntary unemployment and worker self selection abstract consider a firm that lacks information about the reservation wage or ability of any specific worker but is aware that workers with higher reservation wages tend to be more able on average we show that under a simple condition that the efficiency wage exceeds the lowest reservation wage the optimal hiring policy for the firm involves 1 no wage discrimination and 2 rationing of jobs when demand for its product is low the result also extends to the case where hours of work are variable provided each worker is most productive when working a strictly positive number of hours per week

intergenerational conflicts of interest and seniority systems in organizations this paper studies the role of a proposed seniority system in an organization the organization consists of at least three overlapping generations of short lived members and chooses either a shortsighted or a farsighted action in each period this results in intergenerational conflicts of interest the old generation desires to obtain an immediate profit while the middle and young generations have incentives to invest for future profits we use a model of infinitely repeated games and demonstrate that the seniority system solves these conflicts in the sense that the farsighted action profile is sustainable in equilibrium

incentives for discrimination this paper models employers incentives for discrimination against ex ante identical groups of workers when the workers must compete for a limited number of positions employers benefit from discrimination against minority workers because it can reduce the overall risk from workers noisy signals by increasing the expected quality of majority workers and their chance to win the competition for the limited number of positions we show that employers can influence the selection of a discriminatory equilibrium by choosing the set of finalists in competition primarily from a majority group and favoring them when the two groups are equally qualified we discuss the implications of equal opportunity laws in this context

efficiency wages deferred payments and direct incentives in agriculture empirical evidence from agricultural labor markets is consistent with efficiency wage theory and inconsistent with several alternative explanations according to this theory the higher wage or deferred payment benefits that direct hire growers pay relative to that of farm labor contractors is an efficiency wage growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers copyright 2002 oxford university press

intertemporal incentives under loss aversion this paper studies the intertemporal allocation of incentives in a repeated moral hazard model with reference dependent preferences as in k oszegi and rabin 2009 besides consumption utility the agent experiences utility from the change in his beliefs about present and future eort and income when eort plans are rational the prospect of being disappointed by the outcome realization equals that of being pleasantly surprised and hence the loss averse agent is on net hurt by news in contrast to the prediction with classical preferences but consistent with real world contracts if consumption utility is not too concave and news about present income carries suciently larger weight in utility than news about future income a contract setting a current

a general equilibrium model of statistical discrimination we study a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated asymmetrically in equilibrium the interaction between an informational externality and general equilibrium effects creates incentives for groups to specialize discrimination may arise even if the corresponding model with a single group has a unique equilibrium the dominant group gains from discrimination rationalizing why a majority may be reluctant to eliminate discrimination the model is also consistent with reverse discrimination as a remedy against discrimination since it may be necessary to decrease the welfare of the dominant group to achieve parity

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

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

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

age dependent employment protection this paper examines the age related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life time we first argue that the potential employment gains related to employment protection are high for older workers as they are magnified by the proximity to retirement but higher firing taxes for these workers increase job destruction rates for the younger generations furthermore from a normative standpoint when firms cannot ex ante age direct their search the impact of each generation of unemployed workers on the average return on vacancies makes the internalization of the search costs for the other generations imperfect through the ex post nash bargaining process we show that the first best age profile of firing taxes is typically hump shaped partially in contradiction with existing policies in some european countries taking into account the fact that the human capital of older workers is more specific than general tends to exacerbate these results

labor contracts under asymmetric information when workers are free to quit this paper examines the impact of workers ability to quit on the performance of labor contracts between workers and privately informed firms while the need to induce workers to remain with the firm necessarily lowers total welfare the effect on employment levels is to reduce the magnitude of the inefficiency due to asymmetric information whether this inefficiency is under or overemployment the model predicts that employment distortions increase with the strength of lock in effects on workers a prediction which contrasts with the results of efficiency wage models and which may help in empirical testing of labor contract theory

health insurance market reform and employee compensation the case of pure community rating in new york abstract pure community rating which was enacted to improve access to health insurance in new york s small group market in 1993 prevents carriers from charging different premiums based on the ages of a firm s workers if small firms were adjusting compensation packages prior to reform to offset higher health care costs of older workers then community rating could lead to greater relative wages for older workers post reform and not necessarily induce adverse selection that results in changes in who is insured i present evidence showing that relative wages of older workers in small firms increased in comparison with other states and with large firms within new york following reform

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