High Compensation Creates a Ratchet Effect

Hans Gersbach and Amihai Glazer

Economic Journal, 2009, vol. 119, issue 539, 1208-1224

Abstract: Consider a firm which pays a (credit‐constrained) worker for his effort over two periods. The more the firm pays in one period, the wealthier is the worker in the following period, and so the more he must then be paid for a given effort. We describe the profit‐maximising contract under these conditions, showing how this wealth‐ratchet effect can raise wages over time, and cause the firm to fire older workers.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0297.2009.02256.x

Related works:
Journal Article: High Compensation Creates a Ratchet Effect (2009)
Working Paper: High Compensation Creates a Ratchet Effect (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:119:y:2009:i:539:p:1208-1224

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1468-0297

Access Statistics for this article

Economic Journal is currently edited by Estelle Cantillon, Martin Cripps, Andrea Galeotti, Morten Ravn, Kjell G. Salvanes, Frederic Vermeulen, Hans-Joachim Voth and Rachel Kranton

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().