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Multiperiod Wage Contracts and Productivity Profiles

Author

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  • Jerry Timmins
  • Dan Bernhardt

Abstract

Creditors do not generally honor human capital as collateral. This paper demonstrates how long term wages contracts between workers and firms can circumvent the capital market imperfection. Generation of firm specific skills creates an economic bond between worker and firm. This bond enables the firm to transfer loans to an impatient worker in the form of wages in excess of what the worker is initially worth to the firm. Subsequently, the value of the worker's marginal product to the employer exceeds his spot market value enabling the firm to recoup its loans to the worker through lower wages and still retain his services. The model can be used to identify unobserved increments in a worker's general skills from the observed wage path, and to explain interindustry disparities in wage paths and statistical discrimination by firms.

Suggested Citation

  • Jerry Timmins & Dan Bernhardt, 1985. "Multiperiod Wage Contracts and Productivity Profiles," Working Paper 644, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:644
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    Cited by:

    1. Qian, Nancy & Lagakos, David & Moll, Benjamin & Porzio, Tommaso, 2012. "Experience Matters: Human Capital and Development Accounting," CEPR Discussion Papers 9253, C.E.P.R. Discussion Papers.
    2. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2013. "Credit within the Firm," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 211-247.
    3. Lam, Kit-Chun & Liu, Pak-Wai & Wong, Yue-Chim, 1995. "Wage structure when wage offers are private," Labour Economics, Elsevier, vol. 2(1), pages 19-32, March.
    4. Barth, Erling, 1997. "Firm-Specific Seniority and Wages," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 495-506, July.
    5. Ngo Van Long & Antoine Soubeyran & Raphael Soubeyran, 2014. "Knowledge acquisition within an organization: How to retain a knowledge worker using wage profile and non-monotonic knowledge accumulation," CIRANO Working Papers 2014s-32, CIRANO.
    6. Ngo Van Long & Antoine Soubeyran & Raphael Soubeyran, 2014. "Knowledge Accumulation Within An Organization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1089-1128, November.
    7. Scoones, David, 2000. "Matching and competition for human capital," Labour Economics, Elsevier, vol. 7(2), pages 135-152, March.
    8. Lam, Kit-Chun & Liu, Pak-Wai, 2000. "Verifiable wage offers and recontracting: effect on wage and consumption profiles," Labour Economics, Elsevier, vol. 7(4), pages 449-462, July.
    9. Scoones, David & Bernhardt, Dan, 1998. "Promotion, Turnover, and Discretionary Human Capital Acquisition," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 122-141, January.
    10. Atsuko Tanaka, "undated". "Who bears the cost of workers' health-related presenteeism and absenteeism," Working Papers 2016-31, Department of Economics, University of Calgary, revised 10 May 2016.

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