Incentives and Careers in Organizations

Abstract:     
This paper surveys two related pieces of the labor-economics literature: incentive pay and careers in organizations. In the discussion of incentives, I first summarize theory and evidence related to the classic agency model, which emphasizes the tradeoff between insurance and incentives. I then offer econometric and case-study evidence suggesting that this classic model ignores several crucial issues and sketch new models that begin to analyze these issues. In the discussion of careers in organizations, I begin by summarizing evidence on wages and positions using panel data within firms. This evidence is sparse and far-flung (drawn from industrial relations, organizational behavior and sociology, as well as from labor economics); I identify ten basic questions that merit more systematic investigation. Turning to theory, I describe building-block models that address one or a few pieces of evidence but focus on more recent models that address broad patterns of evidence.

Number of Pages in PDF File: 36

JEL Classification: J33, J41, D8

working papers series