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An Equilibrium Analysis of Wage—Productivity Gaps

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  • J. Luis Guasch
  • Andrew Weiss

Abstract

We develop a model in which each firm chooses a hiring standard as well as a wage schedule and an application fee, we then characterize the set of Nash equilibria, and establish necessary and sufficient conditions for the existence of equilibrium. If the distribution of productivities within each ability type is Gaussian, workers who pass the test will be paid more than the value of their marginal product, while workers who fail the test will receive a wage, net of the application fee, below the value of their marginal product.

Suggested Citation

  • J. Luis Guasch & Andrew Weiss, 1982. "An Equilibrium Analysis of Wage—Productivity Gaps," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 485-497.
  • Handle: RePEc:oup:restud:v:49:y:1982:i:4:p:485-497.
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    File URL: http://hdl.handle.net/10.2307/2297282
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    Citations

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    Cited by:

    1. Joseph E. Stiglitz & Andrew Weiss, 1987. "Macro-Economic Equilibrium and Credit Rationing," NBER Working Papers 2164, National Bureau of Economic Research, Inc.
    2. Andrew Weiss & Henry Landau, 1985. "On the Negative Correlation Between Performance and Experience and Education," NBER Working Papers 1613, National Bureau of Economic Research, Inc.
    3. Brandt, Loren & Hosios, Arthur J, 1996. "Credit, Incentives, and Reputation: A Hedonic Analysis of Contractual Wage Profiles," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1172-1226, December.
    4. Braz Camargo & Elena Pastorino, 2012. "Learning-by-employing: the value of commitment under uncertainty," Staff Report 475, Federal Reserve Bank of Minneapolis.
    5. Andrew Weiss & Henry Landau, 1987. "Validating Hiring Criteria," NBER Working Papers 2167, National Bureau of Economic Research, Inc.
    6. Hermann Gartner & PD Christian Holzner, 2015. "Wage Posting as a Positive Selection Device: Theory and Empirical Evidence," CESifo Working Paper Series 5494, CESifo Group Munich.
    7. William J. Moore & Robert J. Newman & Geoffrey K. Turnbull, 2002. "The Experience-Earnings Profile: Productivity-Augmenting or Purely Contractual?," Departmental Working Papers 2002-13, Department of Economics, Louisiana State University.
    8. Gérard Ballot & Yves Zénou, 1992. "Appariement et rotation de la main-d'oeuvre : une analyse théorique et économétrique sur données de panel," Économie et Prévision, Programme National Persée, vol. 102(1), pages 129-142.
    9. Joseph G. Altonji & Robert A. Shakotko, 1985. "Do Wages Rise With Job Seniority?," NBER Working Papers 1616, National Bureau of Economic Research, Inc.
    10. Statt, A.L., 1998. "Training and Displacement: is Employer Paid Training Firm-Specific?," Working Papers Series 9801, University of Stirling, Division of Economics.
    11. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    12. Waldman, Michael, 1989. "Information on worker ability : An analysis of investment within the firm," Information Economics and Policy, Elsevier, vol. 4(1), pages 57-80.

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