Bonus season: A theory of periodic labor markets and coordinated bonuses
71 Pages Posted: 23 Feb 2018 Last revised: 27 Jan 2021
Date Written: January 13, 2021
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: Suggested Citation