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Time, Salary, and Incentive Payoffs in Labor Contracts

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  • Fama, Eugene F

Abstract

Time (hourly payoffs) and salary (the payoff does not vary with hours) account for the bulk of the payoffs on labor contracts. This article argues that the choice between time and salary centers on the presence (time) or absence (salary) of information about flows of effort or output per unit time. Without information about the flow of hourly effort or output, payoffs for time give the workers an incentive to supply hours without effort. Time can then become uninformative about output. In this situation, if the contract includes a fixed payoff, it is likely to be a salary rather than a payoff for time. Copyright 1991 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 9 (1991)
Issue (Month): 1 (January)
Pages: 25-44

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Handle: RePEc:ucp:jlabec:v:9:y:1991:i:1:p:25-44

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Web page: http://www.journals.uchicago.edu/JOLE/

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Cited by:
  1. Matthias Krakel, 2006. "Tournaments versus Piece Rates under Limited Liability," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 5(3), pages 185-199, December.
  2. Garen, John, 1998. "Self-employment, pay systems, and the theory of the firm: An empirical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 257-274, August.
  3. Antti Kauhanen & Sami Napari, 2012. "Performance Measurement and Incentive Plans," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 645-669, 07.
  4. Frank Figge, 2004. "Stakeholder und Unternehmensrisiko," Risk and Insurance 0408001, EconWPA.
  5. Bauer, Thomas K. & Haisken-DeNew, John P., 2001. "Employer learning and the returns to schooling," Labour Economics, Elsevier, vol. 8(2), pages 161-180, May.
  6. Fernando Lozano, 2010. "Understanding the workweek of foreign born workers in the United States," Review of Economics of the Household, Springer, vol. 8(1), pages 83-104, March.
  7. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  8. Daniel S. Hamermesh, 2002. "12 million salaried workers are missing," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(4), pages 649-666, July.
  9. Hart, Robert A., 2008. "Piece work pay and hourly pay over the cycle," Labour Economics, Elsevier, vol. 15(5), pages 1006-1022, October.
  10. Johnson, Marilyn F. & Nelson, Karen K. & Shackell, Margaret B., 2001. "An Empirical Analysis of the SEC's 1992 Proxy Reforms on Executive Compensation," Research Papers 1679, Stanford University, Graduate School of Business.
  11. Henneberger, Fred & Sousa-Poza, Alfonso & Ziegler, Alexandre, 2007. "Performance Pay, Sorting, and Outsourcing," IZA Discussion Papers 3019, Institute for the Study of Labor (IZA).

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