Wage incentive profiles in dual labour markets

Grassi, Emanuele and Di Cintio, Marco (2011): Wage incentive profiles in dual labour markets.

Abstract

We propose a modified version of the Shapiro-Stiglitz’s (1984) efficiency wage model by introducing temporary contracts in the standard setup. New theoretical insights emerge on the incentive problem faced by workers and firms. We argue that the existence of temporary contracts broaden the incentive menu available to employers and that the optimal incentive structure can be sustained as an equi- librium outcome only if permanent contracts do not disappear. We also provide an alternative explanation of the wage penalty suffered by temporary workers even if standard models of efficiency wages would predict higher compensations for workers facing a higher job loss risk.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dual labour market, efficiency wages, wage differentials
• Subjects: J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Labor Contracts; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs

References

Albrecht, J. W. and Vroman, S. B.: 1992, Dual labor markets, efficiency wages, and search, Journal of Labor Economics 10(4), 438–461.

Blanchard, O. and Landier, A.: 2002, The Perverse Effects of Partial Labour Market Reform: Fixed-Term Contracts in France, The Economic Journal 112, F214–F244.

Bulow, J. I. and Summers, L. H.: 1986, A theory of dual labor markets with application to industrial policy, discrimination, and keynesian unemployment, Journal of Labor Economics 4(3), 376–414.

Cahuc, P. and Postel-Vinay, F.: 2002, Temporary Jobs, Employment Protection and Labor Market Performance, Labour Economics 9, 63–91.

Cappelli, P. and Chauvin, K.: 1991, An interplant test of the efficiency wage hypothesis, The Quarterly Journal of Economics 106(3), 769–787.

Dolado, J., García-Serrano, C. and Jimeno, J.: 2002, Drawing lessons from the boom of temporary jobs in spain, The Economic Journal .

Galdón-Sánchez, J. E. and Güell, M.: 2003, Dismissal Conflicts and Unemployment, European Economic Review 47(2), 323–335.

Güell, M. and Mora, J. V. R.: 2010, Temporary contracts, incentives and unemploy- ment, CEPR Discussion Paper (8116).

Hagen, T.: 2002, Do temporary workers receive risk premiums? assessing the wage effects of fixed–term contracts in West Germany by a matching estimator compared with parametric approaches, Labour 16(4), 667–705.

Ichino, A. and Riphahn, R.: 2005, The Effect of Employment Protection on Worker Effort: Absenteeism During and After Probation, Journal of the European Economic Association 3(1), 120–143.

Jimeno, J. and Toharia, L.: 1993, The effects of fixed-term employment on wages: Theory and evidence from spain, Investigaciones-Económicas 17(3), 475–494.

OECD: 2002, Employment Outlook, OECD, Paris. 19

Shapiro, C. and Stiglitz, J. E.: 1984, Equilibrium Unemployment as a Worker Discipline Device, The American Economic Review 74(3), 433–444.