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Wage incentive profiles in dual labour markets

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  • Grassi, Emanuele
  • Di Cintio, Marco

Abstract

We propose a modified version of the Shapiro-Stiglitz’s (1984) efficiency wage model by introducing temporary contracts in the standard setup. New theoretical insights emerge on the incentive problem faced by workers and firms. We argue that the existence of temporary contracts broaden the incentive menu available to employers and that the optimal incentive structure can be sustained as an equi- librium outcome only if permanent contracts do not disappear. We also provide an alternative explanation of the wage penalty suffered by temporary workers even if standard models of efficiency wages would predict higher compensations for workers facing a higher job loss risk.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32266.

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Date of creation: Jul 2011
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Handle: RePEc:pra:mprapa:32266

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Keywords: Dual labour market; efficiency wages; wage differentials;

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  1. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages 376-414, July.
  2. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, Elsevier, vol. 15(3), pages 482-511, June.
  3. Albrecht, James W & Vroman, Susan B, 1992. "Dual Labor Markets, Efficiency Wages, and Search," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 10(4), pages 438-61, October.
  4. George A. Akerlof & Lawrence F. Katz, 1988. "Workers' Trust Funds and the Logic of Wage Profiles," NBER Working Papers 2548, National Bureau of Economic Research, Inc.
  5. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 477-94, July.
  6. Cahuc, Pierre & Postel-Vinay, Fabien, 2001. "Temporary Jobs, Employment Protection and Labor Market Performance," IZA Discussion Papers 260, Institute for the Study of Labor (IZA).
  7. Juan F. Jimeno & Luis Toharia, 1993. "The effects of fixed-term employment on wages: theory and evidence from Spain," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 17(3), pages 475-494, September.
  8. Kahn, Lawrence M., 2005. "The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence," IZA Discussion Papers 1548, Institute for the Study of Labor (IZA).
  9. Dominique Goux & Eric Maurin & Marianne Pauchet, 1999. "Fixed-term Contracts and the Dynamics of Labour Demand," Working Papers, Centre de Recherche en Economie et Statistique 99-02, Centre de Recherche en Economie et Statistique.
  10. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, Elsevier, vol. 47(2), pages 323-335, April.
  11. Fabio Berton & Pietro Garibaldi, 2012. "Workers and Firms Sorting into Temporary Jobs," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(562), pages F125-F154, 08.
  12. Cappelli, Peter & Chauvin, Keith, 1991. "An Interplant Test of the Efficiency Wage Hypothesis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(3), pages 769-87, August.
  13. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  15. Andrea Ichino & Regina T. Riphahn, 2005. "The Effect of Employment Protection on Worker Effort: Absenteeism During and After Probation," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(1), pages 120-143, 03.
  16. Rebitzer, James B & Taylor, Lowell J, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1373-83, November.
  17. Juan José Dolado & Carlos García-Serrano & Juan F. Jimeno, . "Drawing Lessons from the Boom of Temporary Jobs in Spain," Working Papers 2001-11, FEDEA.
  18. Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, Elsevier, vol. 89(2-3), pages 487-500, February.
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