TY  - JOUR
AU  - Akerlof,George A.
AU  - Katz,Lawrence F.
TI  - Workers' Trust Funds and the Logic of Wage Profiles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2548
PY  - 1989
Y2  - October 1989
UR  - http://www.nber.org/papers/w2548
L1  - http://www.nber.org/papers/w2548.pdf
N1  - Author contact info:
George A. Akerlof
683 San Luis Road
Berkeley, CA 94707-1725
E-Mail: akerlof@econ.berkeley.edu

Lawrence F. Katz
Department of Economics
Harvard University
Cambridge, MA  02138
Tel: 617/495-5148
Fax: 617/613-1245
E-Mail: lkatz@harvard.edu
AB  - This paper defines a concept, a worker's trust fund, which is useful in analyzing optimal age-earnings profiles. The trust fund represents what a worker loses if dismissed from a job for shirking. In considering whether to work or shirk, a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort. This concept is used to show that the implicit bonding in upward sloping age-earnings profiles is not a perfect substitute for an explicit upfront performance bond (or employment fee). It is also shown that the second-best optimal earnings profile in the absence of an upfront employment fee pays total compensation in excess of market clearing in a variety of stylized cases.
ER  -