WAGE PROFILES - SHAPE AND VARIATIONS

This paper shows that wage profiles become similar to expenditure prof iles and exhibit similar variations if the firm plays the roles of fin ancial institutions and/or government when the latter institutions do not function perfectly for workers. Wage profiles slope upwards becaus e of intergenerational transfers among the firm's workers reflecting t heir preferences over life-cycle consumption. Variations arise when th ere are generational differences in consumption because of the firm's absorption of risk concerning the price of consumption goods or becaus e of intergenerational risk-sharing. The shape of the wage profile is affected by how well other institutions function.