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Fixed-Wages, Wage Differentials And Worker Heterogeneities

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  • GUILLAUME CARLIER
  • DAMIEN GAUMONT

Abstract

We study incentive-compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two-period model. We first reduce this three-dimensional problem to a standard one-dimensional screening problem. Features of second-best labour contracts provide a rationale for both fixed-wages and wage differentials. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

Suggested Citation

  • Guillaume Carlier & Damien Gaumont, 2008. "Fixed-Wages, Wage Differentials And Worker Heterogeneities," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 320-333, December.
  • Handle: RePEc:bla:ausecp:v:47:y:2008:i:4:p:320-333
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    1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    2. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    4. Gaumont, Damien & Schindler, Martin & Wright, Randall, 2006. "Alternative theories of wage dispersion," European Economic Review, Elsevier, vol. 50(4), pages 831-848, May.
    5. Carlier, G. & Gaumont, D., 2002. "A note on wage differentials, fixed-wages and adverse selection," Economics Letters, Elsevier, vol. 77(3), pages 349-356, November.
    6. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    7. Polemarchakis, Heraklis M & Weiss, L, 1978. "Fixed Wages, Layoffs, Unemployment Compensation, and Welfare," American Economic Review, American Economic Association, vol. 68(5), pages 909-917, December.
    8. repec:dau:papers:123456789/6246 is not listed on IDEAS
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