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Federal Reserve Bank of St. Louis
Working Papers
Valuable jobs and uncertainty
Joseph A. Ritter
Lowell J. Taylor

Little attention has been given to the link between variation in a firm's circumstances and the resolution of agency problems that pervade the relationship between a firm and its employees. We construct stochastic versions of standard efficiency-wage and performance-bonding models and find that this connection has important and apparently inescapable consequences. Compensation levels depend on characteristics of the firm. The possibility of the firm's exit drive an important counterfactual prediction in both classes of model: compensation rises in dying firms. This result illustrates the need for careful attention to the circumstances under which valuable jobs are liquidated.

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Joseph A. Ritter & Lowell J. Taylor, Valuable jobs and uncertainty, Federal Reserve Bank of St. Louis, Working Papers 1997-005, 1998.
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Keywords: Job analysis ; Employment (Economic theory) ; Labor turnover
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