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| Author: | Gersbach, H. Glazer, A. |
| Title: | High compensation creates a ratchet effect |
| Journal: | Economic Journal
2009 : JUL, VOL. 119:539 p. 1208-1224 |
| Index terms: | pay wealth workers companies employees |
| Language: | eng |
| Abstract: | This paper considers a situation in which a company pays a worker for his effort over two periods. The more the company pays in one period, the wealthier is the worker in the following period, and so the more he/she must be paid for a given effort. The profit-maximizing contract is described under these conditions, illustrating how this wealth-ratchet effect can raise salaries over time, and cause the firm to fire older employees. |
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