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Rat Races and Glass Ceilings- Career Paths in Organizations

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  • Peter Bardsley

    (Department of Economics, University of Melbourne)

  • Katerina Sherstyuk

    (Department of Economics, University of Hawaii at Manoa)

Abstract

In an ongoing organization, such as a large law partnership, employees are motivated not only by current rewards but also by the prospect of promotion, and the opportunity to influence policy and make rules in the future. This leads to a dynamic programming problem in contract design. We model career design in such a firm as a recursive mechanism design problem in an overlapping generations environment. Agents entering the firm may differ in their private characteristics which affect their costs of effort. We find that under recursive structure, a profit-maximizing principal offers, and promotion-motivated agents accept, "rat-race" contracts with very low wages and high effort levels. With wages driven down to zero, promotions become the main instrument to discriminate among agents in an adverse selection environment. The optimal adverse selection contract introduces a promotion barrier, or a "glass ceiling", for the high cost agents. We thus find that the issues of inefficiently high work levels (the "rat-race") and of unequal promotion rates (the "glass ceiling") are intimately interconnected. We apply this framework to equal opportunity and gender discrimination in employment

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP01-6.pdf
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200106.

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Length: 33 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:hai:wpaper:200106

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Keywords: recursive contracts; mechanism design; overlapping generations; rat-race; glass ceiling;

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  1. Beckmann, Martin J., 1984. "Hierarchy vs. partnership," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 237-245, June.
  2. Christopher Ferrall, 1996. "Promotions and Incentives in Partnerships: Evidence from Major U.S. Law Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 811-27, November.
  3. Wood, Robert G & Corcoran, Mary E & Courant, Paul N, 1993. "Pay Differences among the Highly Paid: The Male-Female Earnings Gap in Lawyers' Salaries," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 417-41, July.
  4. Cremer, Jacques, 1986. "Cooperation in Ongoing Organizations," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 33-49, February.
  5. Carr, Jack & Mathewson, Frank, 1990. "The Economics of Law Firms: A Study in the Legal Organization of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 307-30, October.
  6. O'Flaherty, Siow A., 1990. "Up Or Out Rules In The Market For Lawyers," Discussion Papers 1990_29, Columbia University, Department of Economics.
  7. Stoughton, Neal M & Talmor, Eli, 1999. "Managerial Bargaining Power in the Determination of Compensation Contracts and Corporate Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 69-93, February.
  8. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," NBER Working Papers 7732, National Bureau of Economic Research, Inc.
  9. Albrecht, James & Björklund, Anders & Vroman, Susan, 2001. "Is There a Glass Ceiling in Sweden?," IZA Discussion Papers 282, Institute for the Study of Labor (IZA).
  10. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
  11. Stephen J. Spurr, 1990. "Sex discrimination in the legal profession: A study of promotion," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(4), pages 406-417, April.
  12. Feinberg, Robert M, 1994. "Paralegals and Associate Lawyers: Substitutability within the Law Firm, 1977-87," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 367-72, May.
  13. Sicherman, Nachum & Galor, Oded, 1990. "A Theory of Career Mobility," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 169-92, February.
  14. Bardsley, P., 2001. "Recursive Contracts," Department of Economics - Working Papers Series 797, The University of Melbourne.
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