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Valuable jobs and uncertainty

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  • Joseph A. Ritter
  • Lowell J. Taylor
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    Abstract

    Little attention has been given to the link between variation in a firm's circumstances and the resolution of agency problems that pervade the relationship between a firm and its employees. We construct stochastic versions of standard efficiency-wage and performance-bonding models and find that this connection has important and apparently inescapable consequences. Compensation levels depend on characteristics of the firm. The possibility of the firm's exit drive an important counterfactual prediction in both classes of model: compensation rises in dying firms. This result illustrates the need for careful attention to the circumstances under which valuable jobs are liquidated.

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    File URL: http://research.stlouisfed.org/wp/more/1997-005
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1997-005.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedlwp:1997-005

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    Related research

    Keywords: Job analysis ; Employment (Economic theory) ; Labor turnover;

    References

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    1. John Abowd & Orley Ashenfelter, 1980. "Anticipated Unemployment, Temporary Layoffs and Compensating Wage Differentials," Working Papers 517, Princeton University, Department of Economics, Industrial Relations Section..
    2. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
    3. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
    4. 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.
    5. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
    6. Joseph A. Ritter & Lowell Taylor, 1998. "Seniority-based layoffs as an incentive device," Working Papers 1998-006, Federal Reserve Bank of St. Louis.
    7. Ritter, Joseph A & Taylor, Lowell J, 1994. "Workers as Creditors: Performance Bonds and Efficiency Wages," American Economic Review, American Economic Association, vol. 84(3), pages 694-704, June.
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