TENURE, EARNINGS AND PRODUCTIVITY
| Author | M. Mendes de Oliviera,Elchanan Cohn,B. F. Kiker |
| Date | 01 February 1989 |
| DOI | http://doi.org/10.1111/j.1468-0084.1989.mp51001001.x |
| Published date | 01 February 1989 |
OXFORD BULLETIN
of
ECONOMICS and STATISTICS
Volume 51 February 1989 No. 1
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 51, 1(1989)
0305-9049 S3.00
TENURE, EARNINGS AND PRODUCTIVITY
M. Mendes de Oliviera*, Elchanan Cohn and B. F Kiker
INTRODUCTION
The classical theory of the demand for labour posits that profit-maximizing
firms will tend to employ labour up to the point at which the value of
marginal product (VMP) equals the marginal cost of that labour. Over the
years, several authors have pointed out a number of qualifications to the
apparent principle, derived from that theory, of spot coincidence of wages
and VMP. The pioneering work in this direction may have been Becker's
(1962) paper on investments in human capital. While retaining equality of
wages and VMP in a lifetime context, Becker theorized that the acquisition of
firm-specific human capital financed, at least in part, by the firm will drive a
wedge between a worker's pay and his contribution to the product at any
given time of his tenure. Specifically, he argued that wages will exceed VMP
over the worker's early period of investment in firm-specific knowledge and
skills and the reverse will happen at later stages, when the firm recovers the
costs it incurred by keeping earnings below VMP. Essentially, the same point
is made by Oi (1962) in his paper on the quasi-fixed nature of some labour
costs, especially those associated with hiring and training.
Other explanations of differences between spot wages and VMP have their
roots in the firms' internal pay structures. In Frank (1984), consumption
interdependences, and the workers' concern with their relative status within
*Oliviera is at University of Porto, Portugal, Cohn and Kiker are at University of South
Carolina. They are indebted to Pedro Portugal and the referees for helpful comments on an
earlier draft.
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