Career Patterns and Career Concerns

This paper develops a model of career concerns. As in Holmström (1999), a worker’s productive abilities are revealed over time through output, and wages are based on expected output, and so on assessed ability. Specifically, work increases the probability that a skilled worker achieves an observable breakthrough. It is shown that effort at different times are strategic substitutes. As as result, effort (and, in case marginal cost is convex, the wage) is single-peaked with seniority. The agent works too little, too late. Both the delay and the underprovision of effort worsen if effort is observable. Finally, if the employer can commit to a wage path but faces competition by firms offering similar contracts, employers offer simple contract with piecewise constant wages, in addition to severance payments.