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The implementation of a supervision and incentive process for identicalworkers may lead to wage variance that stems from employer and employeeoptimization. The harder it is to assess the nature of the labor output, themore important such a process becomes, and the influence of such a process onwage development growth. The dynamic model presented in this paper shows thatan employer will choose to pay a worker a starting wage that is less than whathe deserves, resulting in a wage profile that fits the classic profile in thehuman-capital literature. The wage profile and wage variance rise at times oftechnological advancements, which leads to increased turnover as older workersare replaced by younger workers due to a rise in the relative marginal cost ofthe former.

The Impact of Supervision and Incentive Process in Explaining Wage Profile and Variance