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The Rat Race and Internal Labor Markets

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  • Hajime Miyazaki
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    Abstract

    The labor market is viewed as a market for labor contracts. A firm is identified as having an internal labor market if the efficient mode of production requires that it employ heterogeneous worker types by offering a wage structure as a set of subsidizing contracts. If the firm is free to offer its choice of wage structures, and if the Wilson notion of equilibrium is considered, then certain irreducible combinations of wage-job contracts will obtain. Depending upon the distribution of worker types, wages in these equilibrium wage structures may not correspond to the marginal productivities of individual workers, but the firm breaks even because the wages of high productivity types subsidize low productivity types within the firm. The theoretical framework of our model is based on recent contributions to the theory of self-selection screening.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 8 (1977)
    Issue (Month): 2 (Autumn)
    Pages: 394-418

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    Handle: RePEc:rje:bellje:v:8:y:1977:i:autumn:p:394-418

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    Cited by:
    1. Bucovetsky, Sam & Glazer, Amihai, 2014. "Efficiency, equilibrium and exclusion when the poor chase the rich," Journal of Urban Economics, Elsevier, vol. 81(C), pages 166-177.
    2. Amy Finkelstein & James Poterba & Casey Rothschild, 2006. "Redistribution by Insurance Market Regulation: Analyzing a Ban on Gender-Based Retirement Annuities," NBER Working Papers 12205, National Bureau of Economic Research, Inc.
    3. Amy Finkelstein, 2002. "When Can Partial Public Insurance Produce Pareto Improvements?," NBER Working Papers 9035, National Bureau of Economic Research, Inc.
    4. Thakor, Anjan V. & Udell, Gregory F., 1987. "An economic rationale for the pricing structure of bank loan commitments," Journal of Banking & Finance, Elsevier, vol. 11(2), pages 271-289, June.
    5. Cannon, Edmund & Cipriani, Giam Pietro & Bazar-Rosen, Katia, 2014. "Surprising Selection Effects in the UK Car Insurance Market," IZA Discussion Papers 8172, Institute for the Study of Labor (IZA).
    6. Georges Dionne & Casey G. Rothschild, 2014. "Economic Effects of Risk Classification Bans," Cahiers de recherche 1420, CIRPEE.
    7. Eling, Martin & Jia, Ruo & Yao, Yi, . "Evidence of Adverse Selection in the Group Insurance Market," Working Papers on Finance 1403, University of St. Gallen, School of Finance.
    8. Sukumar Vellakkal, 2009. "Adverse Selection and Private Health Insurance Coverage in India - A Rational Behaviour Model of Insurance Agents under Asymmetric Information," Microeconomics Working Papers 22270, East Asian Bureau of Economic Research.
    9. Citanna, Alessandro & Siconolfi, Paolo, 2014. "Refinements and incentive efficiency in Walrasian models of insurance economies," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 208-218.
    10. Jeffrey M. Lacker & John A. Weinberg, 1995. "The coalition-proof core in adverse selection economies," Working Paper 94-09, Federal Reserve Bank of Richmond.
    11. Jeffrey M. Lacker, 1994. "Does adverse selection justify government intervention in loan markets?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 61-95.
    12. Gadi Barlevy, 2008. "A leverage-based model of speculative bubbles," Working Paper Series WP-08-01, Federal Reserve Bank of Chicago.
    13. Gary-Bobo, Robert J. & Trannoy, Alain, 2013. "Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection," CEPR Discussion Papers 9505, C.E.P.R. Discussion Papers.
    14. Theodoros M. Diasakos & Kostas Koufopoulos, . "Efficient Nash Equilibrium under Adverse Selection," Discussion Paper Series, Department of Economics 201313, Department of Economics, University of St. Andrews.
    15. Sukumar Vellakkal, 2010. "Adverse Selection and Private Health Insurance Coverage in India A Rational Behaviour Model of Insurance Agents under Asymmetric Information," Working Papers id:2690, eSocialSciences.
    16. Nick Netzer & Florian Scheuer, 2012. "A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection," NBER Working Papers 18471, National Bureau of Economic Research, Inc.
    17. Kevin Frick, 1999. "Cross product subsidization in the health insurance market with managed care: A model and issues," Atlantic Economic Journal, International Atlantic Economic Society, vol. 27(2), pages 121-134, June.

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