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Firm-Specific Human Capital and Promotion Ladders

Lorne Carmichael
The Bell Journal of Economics
Vol. 14, No. 1 (Spring, 1983), pp. 251-258
Published by: RAND Corporation
DOI: 10.2307/3003551
Stable URL: http://www.jstor.org/stable/3003551
Page Count: 8
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Firm-Specific Human Capital and Promotion Ladders
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Abstract

This article shows that contracts which make workers' wages depend on their seniority level as well as their length of service can induce optimal turnover in the presence of transactions costs and investments in specific capital. Other arrangements which are shown to be inferior include Becker's standard sharing contract and contracts which embody explicit separation penalties. The optimal wage profile is derived and it corresponds to those we observe.

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