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Random job prospects and the distribution of income

By Tony Venables

Abstract

The paper examines job contracts consisting of a promotion procedure and a wage structure, which cause individuals of different ability to self-select into different jobs. It is established that although the promotion procedure is imperfect (as firms cannot directly obtain perfect information about workers) contracts exist that induce workers to reveal their ability through job choice. Such contracts support an informationally consistent equilibrium. In the equilibrium a proportion of individuals of each ability level are promoted. The paper examines the transformation this induces from the distribution of ability in the population to a distribution of earnings

Topics: HB Economic Theory
Publisher: Oxford University Press
Year: 1983
DOI identifier: 10.2307/1881781
OAI identifier: oai:eprints.lse.ac.uk:1483
Provided by: LSE Research Online
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