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Workers' Trust Funds and the Logic of Wage Profiles

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  • George A. Akerlof
  • Lawrence F. Katz

Abstract

This paper defines a concept, a worker's trust fund, which is useful in analyzing optimal age-earnings profiles. The trust fund represents what a worker loses if dismissed from a job for shirking. In considering whether to work or shirk, a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort. This concept is used to show that the implicit bonding in upward sloping age-earnings profiles is not a perfect substitute for an explicit upfront performance bond (or employment fee). It is also shown that the second-best optimal earnings profile in the absence of an upfront employment fee pays total compensation in excess of market clearing in a variety of stylized cases.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2548.

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Date of creation: Mar 1988
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Publication status: published as The Quarterly Journal of Economics, Vol. CIV, No. 418, pp. 525-536,(August 1989).
Handle: RePEc:nbr:nberwo:2548

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  1. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 200-205, May.
  2. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  3. William T. Dickens & Lawrence F. Katz & Kevin Lang & Lawrence H. Summers, 1989. "Employee Crime, Monitoring, and the Efficiency Wage Hypothesis," NBER Working Papers 2356, National Bureau of Economic Research, Inc.
  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  5. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 16-36, March.
  6. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(4), pages 439-57, October.
  7. Kuhn, Peter, 1986. "Wages, Effort, and Incentive Compatibility in Life-Cycle Employment Contracts," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(1), pages 28-49, January.
  8. George A. Akerlof & Lawrence F. Katz, 1986. "Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?," NBER Working Papers 2025, National Bureau of Economic Research, Inc.
  9. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 1-18, January.
  10. Calvo, Guillermo A, 1985. "The Inefficiency of Unemployment: The Supervision Perspective," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(2), pages 373-87, May.
  11. Eaton, Curtis & White, William D, 1983. "The Economy of High Wages: An Agency Problem," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 50(198), pages 175-81, May.
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