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The Role of Family Ties in the Labour Market. An Interpretation Based on Efficiency Wage Theory

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Author Info
De Paola, Maria
Scoppa, Vincenzo

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Abstract

By casual empiricism, it seems that many firms take explicit account of the family ties connecting workers, often hiring individuals belonging to the same family or passing jobs on from parents to their children. This paper makes an attempt to explain this behaviour by introducing the assumption of altruism within the family and supposing that agents maximise a family utility function rather than an individual one. This hypothesis has been almost ignored in the analysis of the relationship between employers and employees. The implications of this assumption in the efficiency wage models are explored: by employing members of the same family, firms can use a (credible) harsher threat¬ – involving all the family’s members in case of one member’s shirking - that allows them to pay a lower efficiency wage. On the other hand, workers who accept this agreement exchange a reduction in wage with an increase in their probability of being employed: this can be optimal in situation of high unemployment. Moreover, the link between parents and children allows the firm to follow a strategy that solves the problem of an individual’s finite time horizon through family’s reputation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8956.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:8956

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Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
D64 - Microeconomics - - Welfare Economics - - - Altruism
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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  1. De Paola, Maria & Scoppa, Vincenzo, 2003. "Family ties and training provision in an insider-outsider framework," The Journal of Socio-Economics, Elsevier, vol. 32(2), pages 197-217, May. [Downloadable!] (restricted)
  2. Alberto Alesina & Stephan Danninger & Massimo Rostagno, 1999. "Redistribution Through Public Employment: The Case of Italy," NBER Working Papers 7387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Luigi Pistaferri, 1999. "Informal Networks in the Italian Labor Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 355-375, December.
  4. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January. [Downloadable!] (restricted)
    Other versions:
  5. Bentolila, S. & Ichino, A., 2000. "Unemployment and Consumption: are Job Losses Less Painful Near the Mediterranean?," Papers 0010, Centro de Estudios Monetarios Y Financieros-.
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  6. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May. [Downloadable!] (restricted)
  7. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  8. Drazen, Allan & Gottfries, Nils, 1994. "Seniority Rules and the Persistence of Unemployment," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 228-44, April. [Downloadable!] (restricted)
  9. Eliana La Ferrara, . "Ethnicity and Reciprocity: A model of Credit Transactions in Ghana," Working Papers 193, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  10. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-90, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Loukas Spanos & Lena Tsipouri & Manolis Xanthakis, 2005. "Corporate Governance Rating and Family Firms: The Greek Case," Finance 0503011, EconWPA. [Downloadable!]
  2. Ponzo, Michela & Scoppa, Vincenzo, 2008. "The Use of Informal Networks in Italian Labor Markets: Efficiency or Favoritisms?," MPRA Paper 11764, University Library of Munich, Germany. [Downloadable!]
  3. Ponzo, Michela & Scoppa, Vincenzo, 2009. "The Use of Informal Networks in Italy: Efficiency or Favoritism?," MPRA Paper 17281, University Library of Munich, Germany. [Downloadable!]
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