Job Responsibility, Pay and Promotion

Michael Manove

Economic Journal, 1997, vol. 107, issue 440, 85-103

Abstract: How are pay and promotion prospects related to job responsibility? A job entails responsibility to the extent that the value of the job outcome is sensitive to the worker's input of effort. In the author's model, an employer uses termination contracts to elicit effort from workers. The optimal wage increases with responsibility. The author shows that the employer can reduce incentive costs by structuring a job ladder and offering workers a self-enforcing prospect of promotion. In fact, the employers will choose to pay differentiated wages to identical workers in identical jobs, promoting workers from the lower-paying to the higher-paying positions as vacancies occur. Copyright 1997 by Royal Economic Society.

Date: 1997
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