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How to Sell Jobs

Radoslawa Nikolowa () and Daniel Ferreira
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Daniel Ferreira: London School of Economics and CEPR

Authors registered in the RePEc Author Service: Haroon Mumtaz

No 846, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: Profit-maximizing firms should fill job positions at the lowest possible cost. Because employees may have preferences over the attributes of their jobs, we can view this problem as one of finding the optimal way to sell job attributes to potential employees. In this paper, we characterize the optimal mechanism by which a firm can sell jobs with desirable attributes. This mechanism is implemented by offering employees a long-term employment contract in which firms create a number of low-quality job positions and offer them to young employees, while only a subset of these employees are promoted to a desirable job. In contrast to the traditional compensating differentials framework, job desirability and wages are positively related in the optimal contract. Our analysis provides a novel framework for thinking about a number of phenomena, such as the span of control, inequality within and between generations, and the effect of competition on employment and wages.

Keywords: Employment Contracts; Compensating Differentials; Promotions; Job Design; Span of Control (search for similar items in EconPapers)
JEL-codes: M51 J31 L22 (search for similar items in EconPapers)
Date: 2018-01-02
New Economics Papers: this item is included in nep-mac and nep-upt
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