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Tenure, Wage Profiles and Monitoring

  • John G. Sessions
  • Nikolaos Theodoropoulos

Efficiency wage theory predicts that firms can induce worker effort by the carrot of high wages and / or the stick of monitoring worker performance. Another option available to firms is to tilt the remuneration package over time such that the lure of high future earnings acts as a deterrent to current shirking. In this paper we undertake the first empirical investigation of this relationship between the slope of the wage-tenure profile and the level of monitoring. On the assumption that firms strive for the optimal trade-off between these various instruments, we hypothesise that increased monitoring leads to a decline in the slope of the wage-tenure profile. Our empirical analysis, using two cross sections of matched employer-employee British data, provides robust support for this prediction.

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Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 4-2009.

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Length: 40 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:ucy:cypeua:4-2009
Contact details of provider: Web page: http://www.econ.ucy.ac.cy

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