We develop a model of monopsonistic wage competition with heterogenous worker ability and intra-firm production complementarities. We use this to illustrate the conditions under which: (i) the divergence between wages and productivity is an equilibrium phenomena; and (ii) this divergence is...

This Paper provides microfoundations for wage compression by modelling wage-setting in a world of heterogeneous workers and firms. Workers are differentiated by observable innate ability. A high-ability worker confers on a firm an externality, since their ability raises the average level of...

We develop a model demonstrating conditions under which firms will invest in the general training of their workers, and show that firms’ incentives to invest in general training are increasing in task complexity. Workers’ heterogeneous observable innate ability affects the variety of tasks...