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The Lemons Problem in a Labor Market with Intrinsic Motivation. When Higher Salaries Pay Worse Workers

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  • F. Barigozzi
  • D. Raggi

Abstract

We study the Lemons Problem when workers have private information on both their skills and their intrinsic motivation for the job offered by firms in the labor market. We first show that, when workers are motivated, inefficiencies due to adverse selection are mitigated. More interestingly, depending on the association between productivity and motivation, higher salaries affect the pool of candidates in three possible ways: they can attract (i) more skilled but less motivated applicants, as expected; (ii) more skilled and more motivated applicants; (iii) less skilled and less motivated applicants. The last two counterintuitive effects can only occur when a positive correlation exists between productivity and motivation. Our results are relevant in the policy debate on whether it is possible to improve the quality of workers in vocational markets by changing their wage rate and allow to reconcile the different empirical evidence provided so far on motivated workers as teachers, nurses, public servants and politicians.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp883.

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Date of creation: May 2013
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Handle: RePEc:bol:bodewp:wp883

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Cited by:
  1. F. Barigozzi & N. Burani, 2014. "Competition and Screening with Skilled and Motivated Workers," Working Papers wp953, Dipartimento Scienze Economiche, Universita' di Bologna.

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