This paper provides a possible explanation for the empirically observed size-wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general human capital win promotions. Given that the prizes in such tournaments are determined by outside market conditions, the investment and the equilibrium wages depend on firm and industry characteristics. The model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits. Copyright 2001 by The Review of Economic Studies Limited
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Matthias Kräkel, 2005.
"Emotions and the Optimality of Unfair Tournaments,"
Discussion Papers
45, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Claudio Michelacci & Vincenzo Quadrini, 2005.
"Financial Markets and Wages,"
NBER Working Papers
11050, National Bureau of Economic Research, Inc.
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