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Why Are Wage Profiles so Flat During the First Year on a Job?
CAHRS Working Paper Series
  • John H. Bishop, Cornell University
  • Suk Kang, Tokyo Metropolitan University
Publication Date
10-1-1989
Abstract
This paper presents evidence that productivity net of general training costs rise 4 or 5 times more rapidly than wage rates during the first 2 years on a job. This occurs for three reasons. First, sorting, high job search costs and the reputational damages that result from premature separations cause workers to prefer front loaded compensation packages which reduce the likelihood of involuntary terminations. Second, due to progressive income taxation and poor access to credit, workers discount the future more heavily than employers. Front-loading compensation is, therefore, a relatively cheap way for employers to attract top quality new hires. Finally, the minimum wage and union contracts also tend to force flat wage profiles.
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Suggested Citation
Bishop, J. H., & Kang, S. (1989). Why are wage profiles so flat during the first year on a job? (CAHRS Working Paper #89-18). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.
http://digitalcommons.ilr.cornell.edu/cahrswp/416
Citation Information
John H. Bishop and Suk Kang. "Why Are Wage Profiles so Flat During the First Year on a Job?" (1989)
Available at: http://works.bepress.com/john_bishop/56/