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Job raiding raises human capital investments

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This paper studies job raiding and its effect on incentives to invest in human capital. A firm can offer more attractive wages to new hires than to its current employees, thereby raiding a rival’s workers. Our model shows that firms prefer to raid in equilibrium when given the opportunity to do so. As rational workers foresee that job raids increase expected job earnings, they are willing to increase their ex ante investment in human capital. This insight has important implications for any industry where human capital is a scarce input and important aspects of personnel output are observable. Examples include the publications of academic researchers, the performance of professional athletes, and lawsuits won by lawyers. Our conclusions indicate that limiting organizations’ freedom to offer higher wages to new hires vis-à-vis equally productive incumbent employees inhibits investments in human capital.

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Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2004005.

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Length: 49 pages
Date of creation: Apr 2004
Handle: RePEc:ant:wpaper:2004005
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