TY  - JOUR
AU  - Lazear,Edward P.
TI  - Hiring Risky Workers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5334
PY  - 1995
Y2  - November 1995
UR  - http://www.nber.org/papers/w5334
L1  - http://www.nber.org/papers/w5334.pdf
N1  - Author contact info:
Edward P. Lazear
Graduate School of Business
Stanford University
Stanford, CA 94305
Tel: 650/723-9136
Fax: 650/723-0498
E-Mail: lazear@stanford.edu
AB  - It has long been recognized in finance and other literature that variance provides option value.  The same point carries over to the labor market.  Firms like variance in new employees because they can keep the good workers and terminate the bad ones.  But market wages must adjust to make the marginal firm indifferent between high and low variance workers.  The market equilibrium for new, risky workers is explored to determine how workers and firms line up on the various sides of the market.  Firms in growing industries prefer young, high variance workers.  Growing industries will be characterized by high turnover rates.  In order for risky workers to provide option value, it is necessary that the initial employer have some advantage over other firms.  Private information or mobility costs can provide that advantage.  Also required is that the risk have a firm specific component.  General variations in ability provide no option value to an initial hirer.
ER  -