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Job Rents in a Stylized Labor Market

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  • Schlicht, Ekkehart

Abstract

Wage formation is often analyzed by assuming that wage differentials reflect productivity differentials intrinsic to the workers, like differences in skill or qualification. Observed industry and firm effects on wages suggests, however, that wage differentials may result from causes rather unrelated to intrinsic productivity. This paper considers the polar case of homogeneous labor. The wage differentials emerging here are, thus, unrelated to individual differences. The model used is of an economy with a segmented labor market in which the primary sector industries are characterized by high turnover costs. This induces firms to pay efficiency wages reflecting turnover costs. The turnover case offers some rather surprising yet straightforward conclusions regarding efficiency, discrimination and taxation: Workers capture job rents; wage dispersion is too high; considerable wage differentials may arise from infinitesimally small differences in productivity; and a progressive wage tax will be welfare-enhancing.

Suggested Citation

  • Schlicht, Ekkehart, . "Job Rents in a Stylized Labor Market," Chapters in Economics,, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muench:1254
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Warum Sozialberufe schlechter bezahlt werden
      by Ekkehart Schlicht in Funktionale Staatsfinanzen on 2015-10-01 19:10:00

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    Cited by:

    1. Schlicht, Ekkehart, 2006. "Selection Wages: An Example," IZA Discussion Papers 2507, Institute of Labor Economics (IZA).
    2. Schlicht, Ekkehart, 2008. "Wage Dispersion, Over-Qualification, and Reder Competition," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-22.
    3. Schlicht, Ekkehart, 2006. "Selection Wages: An Illustration," Discussion Papers in Economics 958, University of Munich, Department of Economics.
    4. Franz, Wolfgang, 1995. "Theoretische Ansätze zur Erklärung der Arbeitslosigkeit: Wo stehen wir 1995?," Discussion Papers 27, University of Konstanz, Center for International Labor Economics (CILE).

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    More about this item

    Keywords

    wage structure; efficiency wages; dual labor market; discrimination; turnover; wage taxation; income taxation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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