An Overlapping Generations Model of Wage Determination
This paper provides a novel explanation of rising wage profiles and seniority rules. It is argued that whenever a firm bargains over a wage-employment package with its whole work force, a steady-state contract favors older workers. The reason is that old workers have no interest in improving the conditions of "young workers," while young workers do care about the treatment given to "old workers." Therefore, the work force as a whole displays a bias toward older workers, giving them higher wages as well as more job security. These results are derived in an n-period overlapping generations model and the effects of a shock to the firm's revenue function are analyzed. Copyright 1990 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 92 (1990)
Issue (Month): 1 ()
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