Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation

This paper provides a possible explanation for the empirically observed size-wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general...

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Bibliographic Details
Published in:The Review of economic studies 2001-07, Vol.68 (3), p.693-716
Main Authors: Zábojník, Jan, Bernhardt, Dan
Format: Article
Language:English
Subjects:
Bankruptcy
Business structures
Capital investments
Employment
Financial investments
Human capital
Investment strategies
Labor markets
Productivity
Wages
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Summary:This paper provides a possible explanation for the empirically observed size-wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general human capital win promotions. Given that the prizes in such tournaments are determined by outside market conditions, the investment and the equilibrium wages depend on firm and industry characteristics. The model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits.
ISSN:0034-6527
1467-937X
DOI:10.1111/1467-937X.00186