Selection Wages: An Example
9 Pages Posted: 11 Jan 2007
Date Written: December 2006
Offering higher wages may enable firms to attract more applicants and screen them more carefully. If firms compete in this way in the labor market, "selection wages" emerge. This note illustrates this wage-setting mechanism. Selection wages may engender unconventional results, such as a pre-tax wage compression induced by the introduction of a progressive wage tax.
Keywords: wage formation, efficiency wage, incentive wage, mobility, job-specific pay, wage-tax
JEL Classification: J31, J41, J62, J63
Suggested Citation: Suggested Citation