Employment relationships typically involve the division of surplus. Surplus can be the result of a good match, a monopoly rent, or a quasirent that arises because of a specific investment. The division of this surplus is of economic interest as it is a determinant of turnover, investment, and wages. Gary S. Becker (1962) argued, in the context of specific human-capital investments, that the incumbent employee and firm will share the surplus. This notion was formalized in a prototypical model of surplus sharing as first proposed by Masanori Hashimoto (1981). The model has been studied extensively, among others by H. Lorne Carmichael (1983), Robert E. Hall and Edward P. Lazear (1984), and Donald O. Parsons (1986), while Elizabeth Becker and Cotton M. Lindsay (1994) provide an empirical application. The key feature of the model is the existence of transaction costs. Both the employee and the firm have (ex ante uncertain) private information on which they cannot write a contingent contract. This makes that they write a nonrenegotiable contract that specifies a fixed wage. After this, the firm learns the value of the employee’s marginal product whereas the employee learns the value of his outside option. Both parties then decide unilaterally whether to separate or not and inefficient separations may occur. The wage is set in such a way as to maximize the expected total surplus. The present analysis will consider the role of uncertainty in this model. This has not been done before in a rigorous way. Hashimoto considered only degenerate cases. His analysis suggests that the wage will be low when the uncertainty of the market conditions is small, and high when the uncertainty of the conditions inside the firm is small. Parsons (1986) makes a claim that this is actually the case without deriving the result. This paper shows that the comparative statics are ambiguous and may well be the opposite of those suggested by Hashimoto and claimed by Parsons. It also provides the intuition that is behind this result, namely that uncertainty not only influences turnover but also the option value of the match and its opportunity cost. Section I, briefly summarizes Hashimoto’s model and shows that without further assumptions the comparative statics are ambiguous. Section II derives an explicit solution of the wage. Section III briefly considers alternative wage-setting schemes and Section IV concludes.

This article estimates peer effects originating from the ability composition of tutorial groups for undergraduate students in economics. We manipulated the composition of groups to achieve a wide range of support, and assigned students—conditional on their prior ability—randomly to these groups. The data support a specification in which the impact of group composition on achievement is captured by the mean and standard deviation of peers’ prior ability, their interaction, and interactions with students’ own prior ability. When we assess the aggregate implications of these peer effects regressions for group assignment, we find that low- and medium-ability students gain on an average 0.19 SD units of achievement by switching from ability mixing to three-way tracking. Their dropout rate is reduced by 12 percentage points (relative to a mean of 0.6). High-ability students are unaffected. Analysis of survey data indicates that in tracked groups, low-ability students have more positive interactions with other students, and are more involved. We find no evidence that teachers adjust their teaching to the composition of groups.

In this paper, the authors divide actual years of schooling into effective years, repeated years, skipped years, inefficient routing years, and dropout years. Estimation of earnings functions reveals that this topology is statistically superior to the usual concepts of either actual or effective years of schooling. Based on the authors' distinction, they formulate tests that discriminate between the human capital theory and the screening hypothesis. The results give strong support to the human capital theory and refute the screening hypothesis.

This paper evaluates the effects of two subsidies targeted at schools with large proportions of disadvantaged pupils. The first scheme gives primary schools with at least 70% disadvantaged minority pupils extra funding for personnel. The second scheme gives primary schools with at least 70% pupils from any disadvantaged group extra funding for computers and software. The cutoffs provide a regression discontinuity design that we exploit in a local difference-in-differences framework. For both subsidies we find negative point estimates, which are for some outcomes significantly different from 0. Extra funding for computers and software seems especially detrimental for girls' achievement. The negative effects of extra funding for computers and software are consistent with results from other recent studies casting doubt on the efficacy of computers in schools.

Gender differences in competitiveness have been hypothesized as a potential explanation for gender differences in education and labor market outcomes. We examine the predictive power of a standard laboratory experimental measure of competitiveness for the later important choice of academic track of secondary school students in the Netherlands. Although boys and girls display similar levels of academic ability, boys choose substantially more prestigious academic tracks, where more prestigious tracks are more math- and science-intensive. Our experimental measure shows that boys are also substantially more competitive than girls. We find that competitiveness is strongly positively correlated with choosing more prestigious academic tracks even conditional on academic ability. Most important, we find that the gender difference in competitiveness accounts for a substantial portion (about 20%) of the gender difference in track choice.

This article evaluates the long-term effects of class size in primary school. We use rich data from Sweden and exploit variation in class size created by a maximum class size rule. Smaller classes in the last three years of primary school (age 10 to 13) are beneficial for cognitive and noncognitive ability at age 13, and improve achievement at age 16. Most important, we find that smaller classes have positive effects on completed education, wages, and earnings at age 27 to 42. The estimated wage effect is large enough to pass a cost-benefit test.

We assess the predictive power of two measures of competitiveness for education and labor market outcomes using a large, representative survey panel. The first is incentivized and is an online adaptation of the laboratory-based Niederle-Vesterlund measure. The second is an unincentivized survey question eliciting general competitiveness. Both measures are strong predictors of income, occupation, level of education, and field of study. The predictive power of the new unincentivized measure is robust to controlling for other traits, including risk attitudes, confidence, and the Big Five personality traits. For most outcomes, the predictive power of competitiveness exceeds that of the other traits.

We use a unique combination of register and survey data from Amsterdam to investigate the performance of school assignment mechanisms in practice. We find that deferred acceptance (DA) results in higher mean welfare than the adaptive Boston mechanism. This is due to students making strategic mistakes. The welfare gain of a switch from actual Boston to DA is over 90% of the welfare difference between actual Boston and optimal (proxy) Boston. Disadvantaged and lower-ability students would benefit most from such a switch.