Compensation in high-tech labor markets: The role of stock options and technology

This dissertation examines the role of stock options and technology in high-tech labor markets. The first chapter focuses on firms' use of stock options to reduce exposure to labor market pressure during industry booms. If firm stock price is positively related to industry growth and industry growth is positively related to compensation at alternative employers, then stock options can be used to index total employee compensation without increasing wages. The empirical analysis, based on a proprietary survey of information technology (IT) professionals, demonstrates that stock option incidence in the IT sector is positively correlated with regional labor market sensitivity to industry shocks. I conclude that stock options are implemented in a manner consistent with the reduction of labor market pressure.; In the second chapter, I present two models that describe the relationship between stock option incidence and stock price volatility. First, I present an industry-clockspeed human resources (HR) model. Firms in industries where products obsolesce quickly will grant stock options to motivate employees to exert high effort and shorten the product development cycle, which increases volatility of firm performance. In the second approach, I present a model of cash-constrained firms, where firm stock price volatility is positively related to borrowing costs. If borrowing costs increase with performance volatility and risk, firms will offer stock options to conserve cash. Using the IT data, I find that option incidence is positively related to firm volatility, which is consistent with the implications of both models, while the relationship between options incidence and firm size and wages is more consistent with the Clockspeed-HR model.; The third chapter consists of a review of the impact of technological change on work and wages. The literature reviewed is divided into two parts: studies of the impact of technological change on wages (and growing inequality) and productivity; and studies of the interrelationship of technology, human resource systems, and labor productivity. The literature indicates that technological change accounts for only part of the changing wage structure in the United States, whereas changes in institutional forces that affect the creation and distribution of industry rents are also an important factor.