TEL  Vol.3 No.3 A , June 2013
A Model of Progressive Employee Compensation and Superstardom
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.


Cite this paper
S. Hamlen, W. Hamlen and L. Southwick, "A Model of Progressive Employee Compensation and Superstardom," Theoretical Economics Letters, Vol. 3 No. 3, 2013, pp. 1-6. doi: 10.4236/tel.2013.33A001.
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