Career and Non-Career Jobs: Dangling the Carrot

62 Pages Posted: 15 Jun 2021 Last revised: 6 Jul 2022

See all articles by Demetris Koursaros

Demetris Koursaros

Cyprus University of Technology - Department of Commerce

Andri Chassamboulli

University of Cyprus

Date Written: June 11, 2021

Abstract

We develop a model of the labor market with "career" and "non-career" jobs. Workers in career jobs start at the low rank and can be promoted to a higher rank. Non-career jobs have the typical single-rank structure. We show that it is optimal for career firms to incentivize their employees through the option value of a promotion. By increasing the wage spread between low and top positions they can elicit more effort from the mass of the workers in low ranks, while rewarding handsomely only the very few that get promoted. We explore the macroeconomic implications of this hierarchical payment structure. We show how our model can provide interesting insights into various puzzles such as the wage gap between men and women, the cyclicality of the labor wedge and the low volatility of the real wage relative to hours and output along the business cycle, without imposing ad-hoc nominal wage rigidities.

Keywords: career-jobs, wage gap, labor wedge, company hierarchy

JEL Classification: J01, J20, J31, J33

Suggested Citation

Koursaros, Demetris and Chassamboulli, Andri, Career and Non-Career Jobs: Dangling the Carrot (June 11, 2021). Available at SSRN: https://ssrn.com/abstract=3866340 or http://dx.doi.org/10.2139/ssrn.3866340

Demetris Koursaros (Contact Author)

Cyprus University of Technology - Department of Commerce ( email )

Pavlou Mela
Limassol
Cyprus

Andri Chassamboulli

University of Cyprus

75 Kallipoleos Street
Nicosia CY 1678, P.O. Box 2
Cyprus

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