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Financing Skilled Labor

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  • Vladimirov, Vladimir

Abstract

How does competition for high-skilled workers affect the design and financing of compensation? The paper shows that competition affects compensation structure by leading to more equity-based pay. Such compensation attracts workers by helping them extract higher expected pay when uncertain about firm value. Equity-based compensation reduces firms' need for external financing, but it increases retention risk. Specifically, by making workers dependent on the retention of other workers, equity-based compensation increases the risk that worker turnover becomes contagious. To lower their compensation costs and improve retention, firms with stronger bargaining power favor deferred fixed compensation backed by credit lines.

Suggested Citation

  • Vladimirov, Vladimir, 2021. "Financing Skilled Labor," CEPR Discussion Papers 15751, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15751
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    References listed on IDEAS

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    More about this item

    Keywords

    Financing wages; Compensation structure of non-executive employees; High-skilled employees; Contagious turnover; Worker runs; Worker bargaining power;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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