Financing Skilled Labor
WFA 2019 Meetings Paper
47 Pages Posted: 7 Aug 2018 Last revised: 15 Aug 2019
Date Written: August 14, 2019
This paper studies how competition for their skills affects the structure and financing of workers' compensation. Workers' compensation structure has externalities for co-workers and firms, as it affects the risk of subsequent "worker runs" (workers leaving because others are leaving). It is the result of negotiations in which workers face the problem of comparing different types of compensation. If competition for skilled labor empowers workers to dictate terms, workers demand equity-based compensation, effectively, self-financing their compensation. Otherwise, firms offer fixed wages secured by external financing. Both cases entail inefficiencies. The model explains evidence relating compensation structure to worker bargaining power.
Keywords: financing wages, wage structure of non-executive employees, worker runs, worker bargaining power, noncompetition agreements
JEL Classification: G32, M52, J54, J33
Suggested Citation: Suggested Citation