Bonus season: A theory of periodic labor markets and coordinated bonuses

71 Pages Posted: 23 Feb 2018 Last revised: 27 Jan 2021

See all articles by Edward Dickersin Van Wesep

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance

Brian Waters

University of Colorado, Boulder

Date Written: January 13, 2021

Abstract

We present a general equilibrium model in which firms and workers coordinate compensation so that turnover is high in some periods and low in others. This ensures that firms and workers typically search for new matches when other firms and workers are available. If firms and workers find themselves in a periodic equilibrium, contracts often feature large bonuses paid just prior to periods of high labor market turnover. The theory's predictions match stylized facts concerning compensation and turnover in high finance and biglaw.

Keywords: Periodic Equilibria, Pay Timing, Guaranteed Bonuses

JEL Classification: D47, D83, G24, J31, J63

Suggested Citation

Van Wesep, Edward Dickersin and Waters, Brian, Bonus season: A theory of periodic labor markets and coordinated bonuses (January 13, 2021). Available at SSRN: https://ssrn.com/abstract=3124536 or http://dx.doi.org/10.2139/ssrn.3124536

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

Brian Waters (Contact Author)

University of Colorado, Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States
3034921703 (Phone)

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