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Screening, Competition, and Job Design: Economic Origins of Good Jobs

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  • Bartling, Björn

    ()
    (University of Zurich)

  • Fehr, Ernst

    ()
    (University of Zurich)

  • Schmidt, Klaus M.

    ()
    (University of Munich)

Abstract

In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These "high-performance work systems" are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4710.

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Length: 46 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published in: American Economic Review, 2012, 102 (2), 834-864
Handle: RePEc:iza:izadps:dp4710

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Keywords: trust; competition; reputation; screening; high-performance work systems; job design; control; social preferences; complementarities;

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References

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Citations

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Cited by:
  1. Cottini, Elena & Kato, Takao & Westergaard-Nielsen, Niels, 2011. "Adverse workplace conditions, high-involvement work practices and labor turnover: Evidence from Danish linked employer–employee data," Labour Economics, Elsevier, vol. 18(6), pages 872-880.
  2. Ermanno Celeste Tortia, 2013. "Employer moral hazard and wage rigidity. The case of worker-owned and investor-owned firms," Econometica Working Papers wp46, Econometica.
  3. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, Elsevier, Elsevier.
  4. Florian Englmaier & Stephen G. Leider, 2012. "Managerial Payoff and Gift Exchange in the Field," CESifo Working Paper Series 3707, CESifo Group Munich.
  5. Englmaier, Florian & Strasser, Sebastian & Winter, Joachim, 2014. "Worker characteristics and wage differentials: Evidence from a gift-exchange experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 185-203.
  6. Ermanno Tortia & Martha Knox Haly & Anthony Jensen, . "Workers' propensity to cooperate with colleagues and the general population: a comparison based on a field experiment," Econometica Working Papers wp52, Econometica.
  7. Lea Cassar, 2014. "Optimal contracting with endogenous project mission," ECON - Working Papers, Department of Economics - University of Zurich 150, Department of Economics - University of Zurich.
  8. Jared Rubin & Roman Sheremeta, 2012. "Principal-Agent Settings with Random Shocks," Working Papers 12-21, Chapman University, Economic Science Institute.
  9. Benndorf, Volker & Rau, Holger A., 2012. "Competition in the workplace: An experimental investigation," DICE Discussion Papers 53, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  10. Anthony Ziegelmeyer & Katrin Schmelz & Matteo Ploner, 2012. "Hidden costs of control: four repetitions and an extension," Experimental Economics, Springer, vol. 15(2), pages 323-340, June.
  11. Matteo Ploner & Katrin Schmelz & Anthony Ziegelmeyer, 2010. "Hidden Costs of Control: Three Repetitions and an Extension," Jena Economic Research Papers 2010-007, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  12. Navarra, Cecilia & Tortia, Ermanno, 2013. "Employer moral hazard, wage rigidity and worker cooperatives: A theoretical appraisal," AICCON Working Papers, Associazione Italiana per la Cultura della Cooperazione e del Non Profit 117-2013, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.

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