Hiring Through Referrals in a Labor Market with Adverse Selection

Family and nonfamily firms both must align owner and employee interests. However, family firms may experience lower labor productivity because of adverse selection problems from labor market sorting and attenuation. Incentive compensation reduces alignment of interest problems in family and nonfamily firms. Importantly, incentive compensation signals to potential employees that performance will be rewarded, which should improve the relative labor productivity in family firms by reducing adverse selection. Analysis of matched data on 216,768 firms supports our hypotheses, implying that incentive compensation has a broader impact on firm performance than commonly recognized in the family firm or human resource literatures.

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CEO Expertise and the Design of Compensation Contracts: Evidence from Generalist versus Specialist CEOs

Journal of Management Accounting Research ◽

10.2308/jmar-19-019 ◽

2020 ◽

Author(s):

Chunbo Liu ◽

Wei Shi ◽

K. C. John Wei

Keyword(s):

Labor Market ◽

Information Asymmetry ◽

Executive Compensation ◽

Adverse Selection ◽

Boards Of Directors ◽

Incentive Pay ◽

Firm Characteristics ◽

Compensation Contracts ◽

Optimal Contracting ◽

Contracting Process

Generalist CEOs receive higher pay than specialist CEOs. We examine the implications of CEO expertise for the structure of executive compensation. We follow contract theory and predict that information asymmetry induces generalist CEOs to overstate their ability to a larger extent when contracting with shareholders. Boards of directors take this into account by designing compensation contracts that link their pay more closely to firm performance. Our empirical results support this prediction, and the link is more pronounced when generalist CEOs are less known in the executive labor market or are hired externally. The results hold after we control for a battery of factors that potentially affect incentive pay, including firm characteristics and CEO ability. Overall, our results support the optimal contracting perspective of executive compensation and highlight the importance of CEO expertise generality in resolving adverse selection during the contracting process.

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Evidence on Adverse Selection and Establishment Size in the Labor Market

ILR Review ◽

10.2307/3270650 ◽

2002 ◽

Vol 56 (1) ◽

pp. 84 ◽

Cited By ~ 11

Author(s):

Harry Krashinsky

Keyword(s):

Labor Market ◽

Adverse Selection ◽

Establishment Size

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Job Hopping and Adverse Selection in the Labor Market

The Journal of Law Economics and Organization ◽

10.1093/jleo/ewz021 ◽

2019 ◽

Vol 36 (1) ◽

pp. 84-138 ◽

Cited By ~ 1

Author(s):

Xiaodong Fan ◽

Jed DeVaro

Keyword(s):

Labor Market ◽

Adverse Selection ◽

College Graduates ◽

Early Career ◽

Job Tenure ◽

Employer Learning ◽

Market Experience ◽

Economic Downturns ◽

Asymmetric Learning ◽

One Year

Abstract A model of employer learning (both symmetric and asymmetric) about worker ability from job histories is constructed, and testable implications are derived to detect asymmetric learning empirically. The model predicts that early-career bad job matches are particularly damaging when learning is asymmetric. Analysis of NLSY79 data reveals that job hopping is associated with lower wages for college graduates, controlling for measured ability, labor market experience, and current job tenure. Suggestive of asymmetric learning, the effect is strongest for job tenures less than one year and for early-career workers, and mitigated when job hopping severs matches that were formed during economic downturns. (JEL D82, J31, J63)

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Optimal Income Taxation with Adverse Selection in the Labor Market

SSRN Electronic Journal ◽

10.2139/ssrn.2046321 ◽

2012 ◽

Author(s):

Stefanie Stantcheva

Keyword(s):

Labor Market ◽

Adverse Selection ◽

Income Taxation ◽

Optimal Income Taxation

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Evidence on Annuity Choices in Chile

Estudios de Administración ◽

10.5354/0719-0816.2012.56380 ◽

2020 ◽

Vol 19 (1) ◽

pp. 33 ◽

Cited By ~ 1

Author(s):

José Luis Ruiz

Keyword(s):

Labor Market ◽

Adverse Selection ◽

Pension System ◽

Poor Health ◽

Traditional View ◽

Annuity Market ◽

Using Data ◽

Sales Agents ◽

Minimum Pension

This study analyzes the empirical determinants of the annuity choice using data on retirees from the Chilean labor market. We find that sales agents, knowledge about the pension system, and greater education will be associated with an increase in the annuitization probability. Also, we expect that people in poor health are less likely to annuitize, which is supportive of the traditional view of adverse selection in the annuity market. Finally, we analyze the effects on annuity choices of the introduction of a Minimum Pension Guarantee.

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