Multiperiod Wage Contracts and Productivity Profiles

Dan Bernhardt and Gerald C Timmis

Journal of Labor Economics, 1990, vol. 8, issue 4, 529-63

Abstract: When creditors do not honor human capital as collateral, firms can mediate financially by offering workers long-term wage contracts. The optimal contract specifies a wage consisting of a spot general skill component plus a component equal to the expected time-averaged value of the worker's specific skills with a competitor. Variations in the smoothed specific component are due only to changes in expectation about the likelihood of quitting a competing firm. The theory also explains interindustry disparities in wage paths and statistical discrimination by firms. Copyright 1990 by University of Chicago Press.

Date: 1990
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Working Paper: Multiperiod Wage Contracts and Productivity Profiles (1985)
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