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Incentives, Wages, and Promotions: Theory and Evidence

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  • Illoong Kwon

    (University of Michigan)

Abstract

I study an incentive problem that has been largely ignored in the agency literature: incentives for repeated (human capital) investment. The optimal contract is very simple but still provides rich implications for incentive and wage structures in large organizations. The empirical evidence is presented using personnel records of health insurance claim processors in a large U.S. insurance company. These processors are white-collar, nonmanagerial, female, service industry workers - a rapidly growing but rarely studied labor group. The empirical findings are consistent with the main features of the optimal contract.

Suggested Citation

  • Illoong Kwon, 2006. "Incentives, Wages, and Promotions: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 100-120, Spring.
    • Handle: RePEc:rje:randje:v:37:y:2006:1:p:100-120
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    Cited by:

    1. Arantxa Jarque, 2010. "Hidden effort, learning by doing, and wage dynamics," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(4Q), pages 339-372.
    2. Gautam Bose & Kevin Lang, 2011. "A Theory of Monitoring and Internal Labor Markets," Discussion Papers 2012-06, School of Economics, The University of New South Wales.
    3. Koehne, Sebastian & Kuhn, Moritz, 2013. "Optimal capital taxation for time-nonseparable preferences," MPRA Paper 45203, University Library of Munich, Germany.
    4. Bas Klaauw & António Dias da Silva, 2011. "Wage dynamics and promotions inside and between firms," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1513-1548, October.

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