Changes in tenure-earnings profiles and implicit contracts in managerial labor markets
Chauvin, Keith William
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Permalink
https://hdl.handle.net/2142/19098
Description
Title
Changes in tenure-earnings profiles and implicit contracts in managerial labor markets
Author(s)
Chauvin, Keith William
Issue Date
1989
Doctoral Committee Chair(s)
Blau, Francine D.
Department of Study
Labor and Employment Relations
Discipline
Labor and Employment Relations
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, General
Economics, Labor
Sociology, Industrial and Labor Relations
Language
eng
Abstract
This study looks at recent changes in managerial labor markets in terms of changes in the relationship between tenure and earnings. Many product markets have become less stable during the past decade with the deregulation of several industries and increases in foreign competition. As a result, firms are shifting part of the risk associated with these changes to their workers and managers. Many firms, for example, have introduced innovative compensation practices in an attempt to more closely relate pay to measures of performance at each point in time during the employment relationship. These practices are more prevalent among managers and shift some of the risk of short run fluctuations in productivity from the firm to the managers.
This study focuses on changes in the relationship between the tenure and earnings. The empirical fact that years of tenure and earnings positively correlate has received much theoretical and empirical attention in the literature. It is generally accepted that at least part of this correlation is wage growth which occurs with tenure and is caused by compensation schemes which defer the payment of a portion of earned wages from early in the employment relationship until later when the amount deferred is returned to the worker. These schemes are implicit and create incentives for the worker to increase their effort (Lazear-type implicit contracts) and/or to invest in firm-specific human capital.
It is argued here that if firms are shifting risks associated with product markets to managers, then the value to managers of deferred-payment compensation schemes decline. Other things equal, the managerial labor market should create pressures to reduce the use of this type of compensation scheme. It is hypothesized that the slope of the tenure-earnings profile decreased for managers in recent years. This hypothesis is tested by estimating the change in the slope of the tenure-earnings profile between 1979 and 1983, by industry, for managers and other workers. The results support the hypothesis for managers in manufacturing industries, where the change in the competitiveness of the environment has been the greatest, but not for managers in other industries, nor for workers in other occupations.
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