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Tenure: Can it be Explained by an 'Efficiency Wage' Agrument

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  • Schwartz, Abba

Abstract

A two -period efficiency wage model is constructed to show that granting tenure may be a rational choice by a firm. The driving force is the idea that tenure has value to the employee who receives it. Consequently the turnover cost of tenured employees is lower than that of untenured. The difference is the benefit the firm draws from granting tenure. The cost involves the firm's commitment to employ the tenured employees at the second period. The fraction of tenured employees in the firm's labor force is the variable whose optimal choice maximizes the present value of profits.

Suggested Citation

  • Schwartz, Abba, 1988. "Tenure: Can it be Explained by an 'Efficiency Wage' Agrument," Foerder Institute for Economic Research Working Papers 275456, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275456
    DOI: 10.22004/ag.econ.275456
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    References listed on IDEAS

    as
    1. Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(2), pages 194-227.
    2. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
    3. Harris, Milton & Weiss, Yoram, 1984. "Job Matching with Finite Horizon and Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 92(4), pages 758-779, August.
    4. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-472, June.
    Full references (including those not matched with items on IDEAS)

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