Job Rents in a Stylized Labor Market

Ekkehart Schlicht

from University of Munich, Department of Economics

Abstract: Wage formation is often analyzed by assuming that wage differentials reflect productivity differentials intrinsic to the workers, like differences in skill or qualification. Observed industry and firm effects on wages suggests, however, that wage differentials may result from causes rather unrelated to intrinsic productivity. This paper considers the polar case of homogeneous labor. The wage differentials emerging here are, thus, unrelated to individual differences. The model used is of an economy with a segmented labor market in which the primary sector industries are characterized by high turnover costs. This induces firms to pay efficiency wages reflecting turnover costs. The turnover case offers some rather surprising yet straightforward conclusions regarding efficiency, discrimination and taxation: Workers capture job rents; wage dispersion is too high; considerable wage differentials may arise from infinitesimally small differences in productivity; and a progressive wage tax will be welfare-enhancing.

Keywords: wage structure; efficiency wages; dual labor market; discrimination; turnover; wage taxation; income taxation (search for similar items in EconPapers)
JEL-codes: H21 H24 J31 J41 J63 J71 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muench:1254

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