Starting Wages Respond to Employer's Risk

29 Pages Posted: 19 Sep 2007

See all articles by Peter H. G. Berkhout

Peter H. G. Berkhout

University of Amsterdam - SEO Economic Research

Joop Hartog

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

Firms hiring fresh graduates face uncertainty on the future productivity of workers. Intuitively, one expects starting wages to reflect this. Formal analysis supports the intuition. We use the dispersion of exam grades within a field of education as an indicator of the heterogeneity that employers face. We find solid evidence that starting wages are lower if the variance of exam grades is higher and that starting wages are lower if the skew is higher: employers shift quality risk to new hires, but pay for the opportunity to catch the really good workers.

Keywords: wages, risk, ability

JEL Classification: J31

Suggested Citation

Berkhout, Peter H. G. and Hartog, Joop, Starting Wages Respond to Employer's Risk (September 2007). IZA Discussion Paper No. 3026. Available at SSRN: https://ssrn.com/abstract=1015496

Peter H. G. Berkhout

University of Amsterdam - SEO Economic Research ( email )

Roetersstraat 29
Amsterdam, 1018 WB
Netherlands

Joop Hartog (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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