Suman Ghosh

Job Characteristics and Labor Market Discrimination in Promotions: New Theory and Empirical Evidence

We present new theory and empirical evidence concerning racial discrimination in promotions. In our model, promotions signal worker ability. When tasks differ substantially across levels of a job hierarchy, the opportunity cost (in terms of foregone output) of not promoting qualified nonwhite workers is large, so employers are less likely to inefficiently retain these workers in lower-level jobs. Thus, given pre-promotion performance, the extent to which nonwhite workers have lower promotion probabilities should decrease when tasks vary more across levels. Also, the difference between white and nonwhite workers in the wage increase attached to promotion should diminish when tasks vary more across levels. We test these implications empirically using personnel data from a large U.S. firm and from the National Compensation Survey. Results support the theoretical model’s predictions concerning promotion probabilities, whereas support is mixed for the model’s predictions concerning the wage growth attached to promotions.

Product Market Competition and Upstream Innovation: Evidence from the U.S. Electricity Market Deregulation

This paper studies the innovation response of upstream technology suppliers when their downstream buyers transition from regulation to competition. By modeling the impact of the 1990s U.S. electricity deregulation on patenting, we find that after deregulation, the net competition effect (comprising the pure competition and the escape competition effect) decreased innovation by 18.3 and the appropriation effect increased innovation by 19.6. Other deregulation factors have led to a 20.6 decline. In aggregate, after deregulation, innovation by the upstream technology suppliers has declined by 19.3, and upstream innovation quality and generality have declined as well.

A Case for Bundling Public Goods Contributions

We extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated towards the financing of two pure public goods. We explore the welfare implications of allowing for such bundling vis-a-vis a separate contributions scheme. We show that when agents have homogeneous preferences, they cannot be made better off with a bundling scheme. On the contrary, in the generic case when agents are heterogenous in their incomes and preferences, bundling may increase joint welfare compared to a separate contribution scheme, in particular for higher income inequality among the agents. It is interesting to note that the welfare improvement occurs despite a decrease in total contributions. Our findings have implications for the design of charitable institutions and international aid agencies.

A Theory of Worker Turnover and Knowledge Transfer in High-Technology Industries

This paper builds a theoretical model to address evidence on labor mobility patterns in high-technology firms engaged in R&D. Worker turnover in these industries enables the efficient transfer of R&D knowledge across firms in a production environment characterized by volatile returns to R&D investment. We show that both the size and composition of labor turnover are affected by the extent to which R&D knowledge can be transferred and applied across the production processes of different firms. Our analysis also provides implications of such labor mobility for industry growth. We explain how labor turnover in the presence of knowledge transfer has contributed to the success of the high-technology cluster in Silicon Valley.

Job Characteristics and Labor Market Discrimination in Promotions

We extend promotion signaling theory to generate new testable implications concerning racial differences in promotions. In our model, promotions signal worker ability. When tasks differ substantially across job levels, the opportunity cost of not promoting qualified non‐whites/non‐Asians is large, so employers are less likely to inefficiently withhold their promotions. Thus, given prepromotion performance, the extent to which non‐whites/non‐Asians have lower promotion probabilities decreases when tasks vary more across levels. Racial differences in wage increases at promotion diminish when tasks vary more across levels. Evidence from a single firms personnel records supports the models predictions concerning promotion probabilities.

OPTIMAL ENFORCEMENT OF NONCOMPETE COVENANTS

Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement.

A Theory of Worker Turnover in R&D Intensive Firms

This paper builds a theoretical model to address evidence on labor mobility patterns in technology-intensive firms engaged in R&D. Labor turnover in these firms is characteristically different from turnover in traditional industries both in size and composition. Specifically, the pool of workers switching employers comprises of relatively productive workers. Our model explains these characteristics of labor turnover by focusing on the distinguishing features of R&D-intensive firms, in particular, the stochastic nature of returns to R&D investment and the transmission of knowledge spillovers through worker movement, to explain patterns of labor mobility in these firms. The analysis also serves as a tool to analyze the role of Non Disclosure Agreements in wage contracts.