Research papers

The Division of Labor, Firm Size, and Employee Learning (job market paper) ABSTRACT: Despite the plethora of papers examining the firm-size wage premium, there is little attention to the potential for long-term effects of firm size on wages. This paper documents a positive association between current wages and previous firm size, using data from the National Longitudinal Survey of Youth. The magnitude of this relationship is increasing in education and AFQT scores. More educated workers and workers with higher AFQT scores, are substantially more likely to be working in large firms. This paper develops a dynamic model where workers choose the size of their employer, each period, to maximize career earnings. Large firms offer the opportunity to specialize. Career effects enter through the assumption that specialized workers learn faster on the job. The productivity gains from learning are greater for high ability workers; hence a positive sorting between worker ability and firm size. The implications of the model are derived and compared to descriptive statistics from the NLSY.

Self-Selection, Screening, and the Balance of Up-or-Out Rules and Two-tiered Partnerships ABSTRACT: This paper develops a framework to analyze the implications of a model where workers with heterogeneous effort costs choose between firms with alternate promotion policies. In one path, the worker faces strict up-or-out rules that potentially destroy valuable firm specific human capital. The other allows for the possibility of permanent employment without promotion. A costly investment, in the form of effort as an associate, is required to reveal productivity as a partner. Workers with high effort costs do not find the investment worthwhile, thus, they will not make partner and select firms without up-or-out rules. Workers with low effort costs are indifferent between the policies at the equilibrium. Up-or-out rules are optimal for firms when they must screen new associates to find partners and have an incentive to maintain partnership quality.

Up or Over? The role of Permanent Associates in Law Firms ABSTRACT: Over the last two decades many law firms switched from the traditional up-or-out system to retaining associates that do not make partner. This paper considers the incentive effects of employing a permanent associate position rather than using up-or-out rules. A model is described with heterogeneous abilities among associates. Firms observe a noisy signal of output based on associate ability and effort. Firms use the signal to decide which associates are promoted. Using permanent associates as well as partnership, the firm is able to induce the optimal effort from all types; up-or-out rules alone can not accomplish this. Use of a consolation prize requires the firm to increase the rewards of partnership, to prevent high ability workers from pooling with lower ability workers. The main prediction of the model is that firms prefer using permanent associates when the market value of associate effort is higher. The model also predicts that the adoption of a permanent associate position makes full partnerships more exclusive.