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Pastimes : Austrian Economics, a lens on everyday reality
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To: gpowell who wrote (218)5/8/2003 5:03:44 AM
From: Don Lloyd  Read Replies (1) of 445
 
gpowell,

If labor is heterogeneous then potential employees are not just accepting the highest bid. As you alluded to in your previous post (whereby the employer ranks each potential candidate), the employee actively participates in ensuring they have the highest possible ranking for that particular job. They do this by searching out the job for which their unique combination of attributes is a match.

While this would be true in general, what I am interested in here is just what employers are bidding for when they offer wages above that required to acquire a skill set adequate for the specific job at hand. This means that the labor under consideration is a semi-homogeneous slice of the general labor market. Specifically, the labor slice under consideration is homogeneous in that it all has this specific skill set to the same degree and that it all has no better opportunity in another type of job, so it would accept a wage level that paid for nothing except the required skill set. The labor slice is potentially heterogeneous in any way that does not involve the specific skill set for the job at hand.

While the possible reasons that a given company may bid up its offer for a given top ranked employee are unlimited, I see three categories of advantages worth paying for --

1. A perception that the employee will fit in smoothly and non-disruptively with the existing labor force. (LUBRICATION EFFECT)

2. A perception that the employee will likely exhibit a lower rate of major errors over time than others, something that is more important as a given firm has larger revenues at risk than other firms. (INSURANCE EFFECT)

3. A perception that the employee has a larger potential to fill more important future jobs. This promotion from within will result in future profits due to lower hiring costs, shorter learning curves and lower performance risk, as compared with outside recruitment searches. (INVESTMENT EFFECT)

Regards, Don
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