What’s in a Job Title? A VP by Any Other Name Would Demand More Money

Three things appear on a business card: the employee’s name, her employer, and her job title. One may wonder why a firm would send a signal of the employee’s talents to the outside world. After all, if the signal is credible then a sexy job title increases the employee’s outside options to the detriment of the employer. We argue that while internal organization of the firm and delivery of utility benefits to the worker are both valid justifications, there is also a more subtle use of job titles as a substitute for wages. We show that firms can establish reputations for hiring young workers and assigning good job titles to those who succeed. The firm loses good workers using this signal, but can pay workers less in exchange. We find in a general equilibrium setting that firms with reputations pay employees less at every level of tenure and earn economic profit. ∗Kenan-Flagler Business School, University of North Carolina at Chapel Hill, McColl Building, C.B. 3490, Chapel Hill, NC 27599-3490. Tel: 1-919-962-8399; e-mail: [email protected] †Kenan-Flagler Business School, University of North Carolina at Chapel Hill, McColl Building, C.B. 3490, Chapel Hill, NC 27599-3490. Tel: 1-919-360-9689; e-mail: [email protected]