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Incentives and Promotion in Wage Hierarchies

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Author Info
Francesc Dilme (Universitat de Barcelona)
Abstract

Most of the large firms organization schemes consist in hierarchical structures of tiers with different wage levels. Traditionally the existence of this kind of organizations has been associated to the separation of productive and managerial or supervision tasks and to differences in the skills of the workers. However, many firms now employ workers with similar skills, and then the hierarchical structure can be related to an incentive scheme to ensure that workers supply effort. The model we present investigates how firm owners should determine the optimal wage distribution in order to maximize profits.

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Publisher Info
Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 185.

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Length: 22 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bar:bedcje:2007185

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
Web page: http://www.ere.ub.es
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Find related papers by JEL classification:
M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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    Other versions:
  2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December. [Downloadable!] (restricted)
    Other versions:
  3. Dickens, William T, et al, 1989. "Employee Crime and the Monitoring Puzzle," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 331-47, July. [Downloadable!] (restricted)
  4. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-64, June. [Downloadable!] (restricted)
    Other versions:
  5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  7. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October. [Downloadable!] (restricted)
  8. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  9. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December. [Downloadable!] (restricted)
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  10. Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-83, May. [Downloadable!] (restricted)
  11. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
  12. Qian, Yingyi, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 527-44, July. [Downloadable!] (restricted)
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