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Fixed‐Wages, Wage Differentials And Worker Heterogeneities

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  • GUILLAUME CARLIER
  • DAMIEN GAUMONT

Abstract

We study incentive‐compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two‐period model. We first reduce this three‐dimensional problem to a standard one‐dimensional screening problem. Features of second‐best labour contracts provide a rationale for both fixed‐wages and wage differentials.

Suggested Citation

  • Guillaume Carlier & Damien Gaumont, 2008. "Fixed‐Wages, Wage Differentials And Worker Heterogeneities," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 320-333, December.
    • Handle: RePEc:bla:ausecp:v:47:y:2008:i:4:p:320-333
    DOI: 10.1111/j.1467-8454.2008.00352.x
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