Firm-Specific Human Capital and Promotion Ladders

Bell Journal of Economics, 1983, vol. 14, issue 1, pages 251-258

Abstract: This article shows that contracts which make workers' wages depend on their seniority level as well as their length of service can induce optimal turnover in the presence of transactions costs and investments in specific capital. Other arrangements which are shown to be inferior include Becker's standard sharing contract and contracts which embody explicit separation penalties. The optimal wage profile is derived and it corresponds to those we observe.

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Working Paper: Firm-Specific Human Capital and Promotion Ladders (1981)
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