Financing Skilled Labor

WFA 2019 Meetings Paper

47 Pages Posted: 7 Aug 2018 Last revised: 15 Aug 2019

See all articles by Vladimir Vladimirov

Vladimir Vladimirov

University of Amsterdam Business School

Date Written: August 14, 2019

Abstract

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

Vladimirov, Vladimir, Financing Skilled Labor (August 14, 2019). WFA 2019 Meetings Paper. Available at SSRN: https://ssrn.com/abstract=3227946 or http://dx.doi.org/10.2139/ssrn.3227946

Vladimir Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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