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Job Rents in a Stylized Labor Market

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  • Schlicht, Ekkehart

Abstract

Wage formation is often analyzed by assuming that wage differentials reflect productivity differentials intrinsic to the workers, like differences in skill or qualification. Observed industry and firm effects on wages suggests, however, that wage differentials may result from causes rather unrelated to intrinsic productivity. This paper considers the polar case of homogeneous labor. The wage differentials emerging here are, thus, unrelated to individual differences. The model used is of an economy with a segmented labor market in which the primary sector industries are characterized by high turnover costs. This induces firms to pay efficiency wages reflecting turnover costs. The turnover case offers some rather surprising yet straightforward conclusions regarding efficiency, discrimination and taxation: Workers capture job rents; wage dispersion is too high; considerable wage differentials may arise from infinitesimally small differences in productivity; and a progressive wage tax will be welfare-enhancing.

Suggested Citation

  • Schlicht, Ekkehart, . "Job Rents in a Stylized Labor Market," Chapters in Economics, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muench:1254
    as

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    File URL: https://epub.ub.uni-muenchen.de/1254/1/schlicht_jobrents3-DP.pdf
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    References listed on IDEAS

    as
    1. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
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    6. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    7. Schlicht, Ekkehart, 1981. "Training Costs and Wage Differentials in the Theory of Job Competition," Munich Reprints in Economics 1347, University of Munich, Department of Economics.
    8. Schlicht, Ekkehart & Weizsäcker, Carl Christian von, 1977. "Risk Financing in Labour Managed Economics: The Commitment Problem," Munich Reprints in Economics 3148, University of Munich, Department of Economics.
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    12. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    13. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-470, July.
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    16. Ernst FEHR & Simon GÄCHTER & Georg KIRCHSTEIGER, 1994. "Reciprocal Fairness and Noncompensating Wage Differentials," Vienna Economics Papers vie9401, University of Vienna, Department of Economics.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Warum Sozialberufe schlechter bezahlt werden
      by Ekkehart Schlicht in Funktionale Staatsfinanzen on 2015-10-01 19:10:00

    Citations

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    Cited by:

    1. Schlicht, Ekkehart, 2006. "Selection Wages: An Example," IZA Discussion Papers 2507, Institute for the Study of Labor (IZA).
    2. Schlicht, Ekkehart, 2006. "Selection Wages: An Illustration," Discussion Papers in Economics 958, University of Munich, Department of Economics.
    3. Franz, Wolfgang, 1995. "Theoretische Ansätze zur Erklärung der Arbeitslosigkeit: Wo stehen wir 1995?," Discussion Papers 27, University of Konstanz, Center for International Labor Economics (CILE).

    More about this item

    Keywords

    wage structure; efficiency wages; dual labor market; discrimination; turnover; wage taxation; income taxation;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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