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Starting Wages Respond to Employer’s Risk

Author

Listed:
  • Berkhout, Peter

    () (RIGO Research Institute)

  • Hartog, Joop

    () (University of Amsterdam)

Abstract

Firms hiring fresh graduates face uncertainty on the future productivity of workers. Intuitively, one expects starting wages to reflect this. Formal analysis supports the intuition. We use the dispersion of exam grades within a field of education as an indicator of the heterogeneity that employers face. We find solid evidence that starting wages are lower if the variance of exam grades is higher and that starting wages are lower if the skew is higher: employers shift quality risk to new hires, but pay for the opportunity to catch the really good workers.

Suggested Citation

  • Berkhout, Peter & Hartog, Joop, 2007. "Starting Wages Respond to Employer’s Risk," IZA Discussion Papers 3026, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3026
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    References listed on IDEAS

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    More about this item

    Keywords

    wages; risk; ability;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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