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Valuable jobs and uncertainty

Author

Listed:
  • Joseph A. Ritter
  • Lowell J. Taylor

Abstract

Little attention has been given to the link between variation in a firm's circumstances and the resolution of agency problems that pervade the relationship between a firm and its employees. We construct stochastic versions of standard efficiency-wage and performance-bonding models and find that this connection has important and apparently inescapable consequences. Compensation levels depend on characteristics of the firm. The possibility of the firm's exit drive an important counterfactual prediction in both classes of model: compensation rises in dying firms. This result illustrates the need for careful attention to the circumstances under which valuable jobs are liquidated.

Suggested Citation

  • Joseph A. Ritter & Lowell J. Taylor, 1998. "Valuable jobs and uncertainty," Working Papers 1997-005, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1997-005
    DOI: 10.20955/wp.1997.005
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    References listed on IDEAS

    as
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    4. Ritter, Joseph A & Taylor, Lowell J, 1994. "Workers as Creditors: Performance Bonds and Efficiency Wages," American Economic Review, American Economic Association, vol. 84(3), pages 694-704, June.
    5. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
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