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Career and Non-Career Jobs: Dangling the Carrot

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  • Andri Chassamboulli
  • Demetris Koursaros

Abstract

We develop a model of the labor market with career and non-career jobs. Workers in career jobs start at the low rank and can be promoted to a higher rank. Non-career jobs have the typical single-rank structure. We show that it is optimal for career firms to incentivize their employees through the option value of a promotion. By increasing the wage spread between low and top positions they can elicit more effort from the mass of the workers in low ranks, while rewarding handsomely only the very few that get promoted. We explore the macroeconomic implications of this hierarchical payment structure. We show how our model can provide interesting insights into various puzzles such as the wage gap between men and women, the cyclicality of the labor wedge and the low volatility of the real wage relative to hours and output along the business cycle, without imposing ad-hoc nominal wage rigidities.

Suggested Citation

  • Andri Chassamboulli & Demetris Koursaros, 2022. "Career and Non-Career Jobs: Dangling the Carrot," University of Cyprus Working Papers in Economics 07-2022, University of Cyprus Department of Economics.
    • Handle: RePEc:ucy:cypeua:07-2022
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    File URL: https://papers.econ.ucy.ac.cy/RePEc/papers/07-2022.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    career-jobs; promotions; job hierarchy; labor wedge; gender wage gap;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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