Job matching when employment contracts suffer from moral hazard
AbstractWe consider a job matching model where the relationships between firms and wealth-constrained workers suffer from moral hazard. Specifically, effort on the job is non-contractible so that parties that are matched negotiate a bonus contract. Higher unemployment benefits affect the workers' outside option. The latter is improved for low-skilled workers. Hence they receive a larger share of the surplus, which strengthens their effort incentives and increases productivity. Effects are reversed for high-skilled workers. Moreover, raising benefit payments affects the proportion of successful matches, which induces some firms to exit the economy and causes unemployment to increase.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 55 (2011)
Issue (Month): 7 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/eer
Job matching; Incentive contracts; Unemployment benefits; Nash bargaining; Moral hazard;
Find related papers by JEL classification:
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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