[Buying Loyalty: Theory and Evidence from Physicians]
(with Carol Simon and William D. White)
Abstract: Skilled-services firms often lack full control over their key assets—the relationships between their workers and clients. This problem can lead to investment holdups that distort labor market equilibria. We study how non-compete agreements (NCAs), which prohibit a worker from leaving a firm and then competing against it, can overcome this control problem. We show theoretically that NCAs reduce investment holdups and increase productive efficiency. These direct effects lead to higher worker earnings, larger returns to tenure, and longer job spells. However, NCAs also reduce the ex post bargaining power of workers, which can alter the structure of contracts. Using new survey data from physicians, we find that physicians with NCAs have contracts with output incentives that are more than twice as strong, they are over 40% more productive, earn 14% higher wages, and have within-job earnings growth that is 22 percentage points higher, despite being of the same average quality as physicians without NCAs. Decomposing earnings growth, we find that NCAs increase returns to both tenure and experience, suggesting that they promote general as well as firm-specific human capital investment. All of the effects increase in magnitude with the enforceability of state NCA laws.
[The Estimation of Compensating Differentials and Preferences for Occupational Fatality Risk]
Abstract: This paper uses unique longitudinal survey data to provide three new forms of insight on the estimation of hedonic wage models. First, I provide empirical estimates of the previously unidentifiable biases caused by unobserved worker, firm, and match heterogeneity in hedonic wage models. Second, I estimate the first empirical hedonic wage model in which workers' preferences are identified, removing the typical confounding effects of endogenous mobility and sorting. The parameter estimates imply that aversion to marginal increases in fatal risk falls as the level of risk rises. Third, I demonstrate the importance of accounting for on-the-job human capital accumulation in the estimation of compensating wage differentials. In the particular industry studied, estimates suggest that the bias from ignoring human capital formation is larger than all sources of unobserved static heterogeneity combined. Although industry-specific, the results identify parameters and biases that it has only been possible to speculate about in more general empirical settings. The results also imply policy-relevant lower-bound estimates of the value of statistical life.
Ohio State University
Department of Economics
Arps Hall 452
Columbus, OH 43210
E-mail: email@example.com www.kurtlavetti.com