A Theory of Wage Dynamics

Harris, Milton; Holmström, Bengt

doi:10.2307/2297359

Cited by 694 publications

(486 citation statements)

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“…More recently, Flabbi and Ichino (2001) (hereafter termed F/I) not only replicated M/A's work on a sample of non-managerial employees of a large Italian bank, but also extended M/A's study by considering absenteeism and the number of misconduct episodes as al- 5 Their results have stimulated and influenced much theoretical work (see e.g. Lazear, 1981;Harris and Holmstrom, 1982;Demougin and Siow, 1994;Bernhardt, 1995;and Prendergast, 1993). Other notable empirical studies including Kotlikoff and Gokhale (1992), and Hellerstein and Neumark (1995) have found corroborating evidence showing that productivity exceeds earnings when workers are young and vice versa when they are old.…”

Section: Introductionmentioning

confidence: 79%

“…Becker and Stigler, 1974;Lazear, 1979;Lazear, 1981;and Lazear and Rosen 1981). Likewise, selection and sorting (Rosen, 1986) or sluggish learning about unknown worker productivity paired with an insurance motive (Harris and Holmstrom, 1982) have been shown to generate upward sloping seniority-wage profiles in optimal labor contracts. Other justifications for wage growth independent of productivity changes include matching (e.g.…”

Section: Introductionmentioning

confidence: 99%

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Performance, seniority, and wages: formal salary systems and individual earnings profiles

Dohmen

2004

Labour Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. Medoff andAbraham (1980, 1981) and Flabbi and Ichino (2001) using personnel data from the Dutch national aircraft manufacturer Fokker. It shows how a formal salary system, as is widely used by large firms, brings about that seniority-wage profiles are largely independent of controls for reported performance in cross-sectional wage regressions even though supervisors' evaluations shape life-cycle earnings profiles. Performance ratings determine how fast a worker climbs the firm's career and wage ladder. The paper also reveals that real wage growth depends on the employer's prosperity. Furthermore it demonstrates that formal salary systems cause serial correlation in wage growth and `Green Card' effects. JEL Classification:M52, J30, J31

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Section: Introductionmentioning

confidence: 79%

Section: Introductionmentioning

confidence: 99%

Performance, seniority, and wages: formal salary systems and individual earnings profiles

Dohmen

2004

Labour Economics

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“…Notably, they would have incentives to smooth out the cost of skilled labor, and to increase the supply of labor in hot markets. Because, labor contracts are difficult to enforce against workers (see Harris and Holmström (1982)), simply buying forward labor contracts might not be an effective means to stock supply for an anticipated hot market. However, overstaffing in cold market periods combined with building up firm-specific evaluation systems could provide firms with a somewhat captive supply of investment banking labor, and thus allow firms to capture more of the rents from hot markets, while at the same time improving screening in hot markets.…”

Section: Resultsmentioning

confidence: 99%

Good IPOs Draw in Bad: Inelastic Banking Capacity and Hot Markets

2007

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We posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply. Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal firms to enter the IPO market, further increasing the demand for screening labor and thus its compensation. The model's conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, negative correlation between issue volume and information production, and with tipping points between hot and cold markets characterized by discontinuous jumps in volume, underpricing, and issue quality. Finally, the model makes sharp and so far untested predictions relating IPO market conditions both to the fundamental values of IPO firms and to the returns to investment banks and investment banking labor.JEL Classification Codes: G20, G24; Keywords: IPO, underpricing, labor constraint † We wish to thank Walid Busaba, Mike Fishman, Jie Gan, Jon Garfinkel, Anand Goel, Vidhan Goyal, Gerard Hoberg, Yrjo Koskinen, Erik Lie, Ji-Chai Lin, Tim Loughran, Allen Michel, Jacob Oded, Gordon Phillips, Thomas Rietz, Harley "Chip" Ryan, Jay Sa-Aadu, Paul Schultz, Ann Sherman, Mark Taranto, Xianming Zhou, seminar participants at Baruch College, Boston University, DePaul University, Louisiana State University, MIT, Michigan State University, Notre Dame University, University of Iowa, University of Maryland, University of Michigan, University of Minnesota and the University of Western Ontario, as well as the discussant and participants at the 2005 City University of Hong Kong Corporate Finance and Governance Conference for their valuable comments and suggestions. Special thanks are extended to the Editor, Matthew Spiegel, and two anonymous reviewers for very detailed and insightful comments. The second author, Thomas Noe, would also like to acknowledge the generous support and assistance of the Sloan School at MIT, where he was a visiting scholar during the period in which much of the work on the manuscript was completed. All remaining errors are ours.

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“…We have tested the prediction by Harris and Holmstrom (1982) that starting wages are reduced by an insurance premium for employers' guarantee not to reduce a worker's wage if productivity is revealed to be below average. We applied, as strictly as we could, the test as indicated by Harris and Holmstrom themselves: measure the uncertainty on productivity by the variance of wages for a cohort of labour market entrants when they have matured into experienced workers.…”

Section: Resultsmentioning

confidence: 99%

“…For example, Low, Meghir andPistaferi (2010, p 1441) state without any reservation in the American Economic Review: "We assume that there is no commitment from the side of the firm (or the worker), so Milton Harris and Bengt Holmstrom (1982)-type contracts are not implementable." Or, as Shi (2009, 563) notes in Econometrica: "Although heterogeneity, private information, and learning about productivity are important for wage dynamics and turnover in reality, as modeled by Jovanovic (1979), Harris and Holmstrom (1982), and Moscarini (2005), abstracting from them enables me to focus on search". The HarrisHolmstrom model has the status of received (theoretical) wisdom in wage contract theory, as a case of symmetric but incomplete information and learning (see the survey by Chiappori and Salanié (2002).…”

Section: "That Is the Distribution Of Estimated Abilities In The Popumentioning

confidence: 99%

Are starting wages reduced by an insurance premium for preventing wage decline? Testing the prediction of Harris and Holmstrom (1982)

Hartog

Raposo

2017

Labour Economics

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A Theory of Wage Dynamics

Cited by 694 publications

References 17 publications

Performance, seniority, and wages: formal salary systems and individual earnings profiles

Performance, seniority, and wages: formal salary systems and individual earnings profiles

Good IPOs Draw in Bad: Inelastic Banking Capacity and Hot Markets

Are starting wages reduced by an insurance premium for preventing wage decline? Testing the prediction of Harris and Holmstrom (1982)

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