Multiperiod Wage Contracts and Productivity Profiles

When creditors do not honor human capital as collateral, firms can mediate financially by offering workers long-term wage contracts. The optimal contract specifies a wage consisting of a spot general skill component plus a component equal to the expected time-averaged value of the worker's spec...

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Bibliographic Details
Published in:Journal of labor economics 1990-10, Vol.8 (4), p.529-563
Main Authors: Bernhardt, Dan, Timmis, Gerald C.
Format: Article
Language:English
Subjects:
Contract incentives
Contracts
Credit
Economic models
Economic theory
Economic uncertainty
Employment
Human capital
Labor contracts
Labor economics
Labour productivity
Optimal
Productivity
Skills
Utility functions
Wage contracts
Wage rates
Wage theories
Wages
Wages & salaries
Workers
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Summary:When creditors do not honor human capital as collateral, firms can mediate financially by offering workers long-term wage contracts. The optimal contract specifies a wage consisting of a spot general skill component plus a component equal to the expected time-averaged value of the worker's specific skills with a competitor. Variations in the smoothed specific component are due only to changes in expectations about the likelihood of quitting a competing firm. The theory also explains interindustry disparities in wage paths and statistical discrimination by firms.
ISSN:0734-306X
1537-5307
DOI:10.1086/298233