Hiring Risky Workers
It has long been recognized in finance and other literature that variance provides option value. The same point carries over to the labor market. Firms like variance in new employees because they can keep the good workers and terminate the bad ones. But market wages must adjust to make the marginal firm indifferent between high and low variance workers. The market equilibrium for new, risky workers is explored to determine how workers and firms line up on the various sides of the market. Firms in growing industries prefer young, high variance workers. Growing industries will be characterized by high turnover rates. In order for risky workers to provide option value, it is necessary that the initial employer have some advantage over other firms. Private information or mobility costs can provide that advantage. Also required is that the risk have a firm specific component. General variations in ability provide no option value to an initial hirer.
|Date of creation:||Nov 1995|
|Date of revision:|
|Publication status:||published as Ohashi, Isao and Toshiaki Tachibanaki. Internal labour markets, incentives and employment. New York: St. Martin's Press; London: Macmillan Press, 1998.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gibbons, Robert & Katz, Lawrence F., 1991.
"Layoffs and Lemons,"
3442782, Harvard University Department of Economics.
- Michael Waldman, 1983.
"Job Assignments, Signalling nad Efficiency,"
UCLA Economics Working Papers
286, UCLA Department of Economics.
- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
- Reuben Gronau, 1982.
"Sex-Related Wage Differentials and Women's Interrupted Labor Careers--The Chicken or the Egg,"
NBER Working Papers
1002, National Bureau of Economic Research, Inc.
- Gronau, Reuben, 1988. "Sex-Related Wage Differentials and Women's Interrupted Labor Careers--The Chicken or the Egg," Journal of Labor Economics, University of Chicago Press, vol. 6(3), pages 277-301, July.
- Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5334. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.