ECON 308 Study Guide - Midterm Guide: Disability Insurance, Adverse Selection, Absenteeism
Document Summary
Job seniority and pay are usually positively correlated because of learning-by-doing. Wage compression is the situation when new hires are paid more than experienced workers. One explanation is that new hires bring in new ideas that are potentially valuable, while on-going workers on routine tasks gain minimal value from experience. Back-loaded compensation is when compensation increases faster than productivity as an employee ages, for example, professional services such as law & accounting firms. Workers choose back-loaded compensation productivity of workers increases rapidly over time but with uncertainty. Firms frequently offer attractive retirement packages to encourage older employees to retire and often have mandatory retirement age. A typical american worker receives 75% of total compensation in the form of pay for work and. The most important fringe benefits are medical insurance and pension plans. Different workers have different preferences in the tradeoff of pay versus fringe benefits.
