A Model of Progressive Employee Compensation and Superstardom ()
Affiliation(s)
ABSTRACT
This paper identifies the condition leading to a progressive salary situation wherein the elasticity of compensation with respect to ability is greater than unity, i.e., a small percentage advantage in ability results in a disproportional increase in compensation. This analysis also helps explain the “superstar phenomenon” made famous by Rosen (1981). Two assumptions are made. The first is that there is a generalized Cobb-Douglas type of production function wherein different hierarchies of employees of different abilities are viewed as distinct inputs. The second is that the distribution of ability is bell-shaped or approximately normally distributed, and can be approximated by a Poisson distribution. The model is applied using average outgoing salaries of MBA students from different universities compared to their average test scores.
KEYWORDS
Share and Cite:
Copyright © 2024 by authors and Scientific Research Publishing Inc.
This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.