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Incentives and Wage Rigidity

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  • Lazear, Edward P

Abstract

With the growth of the literature on incentive compensation has come the belief by some that incentive pay may be less rigid than pay that is not designed to effect incentives. Some have gone so far as to argue that this may explain differences in unemployment rates across countries. it is shown that there is no direct link between incentives and wage rigidity. Many compensation schemes that provide incentives have the reverse effect: That is, they tend to make wages more rigid than would be the case were incentives not an issue atall. This paper explores the relationship between wage rigidity and the provision of incentives in a variety of circumstances.
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  • Lazear, Edward P, 1984. "Incentives and Wage Rigidity," American Economic Review, American Economic Association, vol. 74(2), pages 339-344, May.
    • Handle: RePEc:aea:aecrev:v:74:y:1984:i:2:p:339-44
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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    6. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
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    9. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 37-50.
    10. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
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    Cited by:

    1. Reynaud Benedicte, 1987. "Règles et l'incomplétude du contrat de travail dans le paradigme standard (les)," CEPREMAP Working Papers (Couverture Orange) 8742, CEPREMAP.

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