Financing Skilled Labor

48 Pages Posted: 11 Feb 2021

See all articles by Vladimir Vladimirov

Vladimir Vladimirov

University of Amsterdam Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2021

Abstract

How does competition for high-skilled workers affect the design and financing of compensation? The paper shows that competition affects compensation structure by leading to more equity-based pay. Such compensation attracts workers by helping them extract higher expected pay when uncertain about firm value. Equity-based compensation reduces firms' need for external financing, but it increases retention risk. Specifically, by making workers dependent on the retention of other workers, equity-based compensation increases the risk that worker turnover becomes contagious. To lower their compensation costs and improve retention, firms with stronger bargaining power favor deferred fixed compensation backed by credit lines.

JEL Classification: G32, J33, J54, M52

Suggested Citation

Vladimirov, Vladimir, Financing Skilled Labor (February 2021). CEPR Discussion Paper No. DP15751, Available at SSRN: https://ssrn.com/abstract=3783977

Vladimir Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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