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Please use this identifier to cite or link to this item: http://arks.princeton.edu/ark:/88435/dsp01pr76f3411
 Title: Who Gets Good Jobs? The Hiring Decisions and Compensation Structures of Large Firms Authors: Hu, Luojia Keywords: firm specifichuman capitaljob searchcompensationfirm size Issue Date: 1-Mar-2000 Citation: Econometrica, Vol. 70, No. 6, November, 2002 Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 436 Abstract: The ﬁrm-speciﬁc human capital theory implies that large ﬁrms prefer to hire younger workers because they invest more in workers than small ﬁrms do and because those investments are ﬁxed costs. In this paper, I use data from the Beneﬁts Supplement to the Current Population Survey (CPS) to demonstrate that large ﬁrms indeed hire younger workers than small ﬁrms, especially for white-collar occupations. I present a simple model of ﬁrm cost minimization within an employee search framework, which is consistent with large ﬁrms’ propensity to hire younger workers, and has additional testable implications regarding large ﬁrms’ compensation structures. First, since young workers are more valuable to large ﬁrms than to small ﬁrms, large ﬁrms oﬁer higher starting wages to attract them. This implies ﬂatter starting wage—age proﬁles among the new hires in large ﬁrms. Second, since large ﬁrms invest more in workers, they continue to pay higher wages to retain the trained employees. This implies steeper wage-tenure proﬁles in large ﬁrms. Both predictions are borne out by the CPS data. Most strikingly, for the newly hired white-collar workers, not only are the starting wage-age proﬁles ﬂatter in large ﬁnns, but also the size-wage premium disappears for workers hired at age 35 or older. Furthermore, by exploiting cost variations in dimensions other than ﬁrm size, such as occupation and industry, this model has additional testable implications. More speciﬁcally, an extension of the simple model would imply that, for high training occupations, workers displaced at older ages suffer greater wage losses than younger workers because they have a harder time ﬁnding a new good job that requires high investments. But there should be no systematic difference in wage loss by age for occupations that require little training. This prediction is supported by the data from the Displaced Worker Surveys. Finally, limited evidence from the BLS Survey of Employer Provided Training 1995 and the CPS suggests that industries that train more also appear to hire younger workers. URI: http://arks.princeton.edu/ark:/88435/dsp01pr76f3411 Related resource: http://links.jstor.org/sici?sici=0012-9682%28200211%2970%3A6%3C2499%3AEOACDP%3E2.0.CO%3B2-B Appears in Collections: IRS Working Papers

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