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Wage fairness in a subcontracted labor market

Author

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  • Basu, Arnab K.
  • Chau, Nancy H.
  • Soundararajan, Vidhya

Abstract

Labor market subcontracting is a global phenomenon. This paper presents a theory of wage fairness in a subcontracted labor market, where workers confront multi-party employment relationships and deep wage inequities between regular and subcontractor-mediated hires. We show that subcontracting derives its appeal from a downward revision of workers’ fair wage demand when producers delegate employment decisions down the supply chain. Furthermore, subcontracting creates a holdup problem, resulting in wages that workers deem unfair, along with adverse worker morale consequences in equilibrium. These insights reveal the efficiency costs of subcontracting as an employer strategy to redress workers’ demand for fair wages.

Suggested Citation

  • Basu, Arnab K. & Chau, Nancy H. & Soundararajan, Vidhya, 2019. "Wage fairness in a subcontracted labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 168(C), pages 24-42.
  • Handle: RePEc:eee:jeborg:v:168:y:2019:i:c:p:24-42
    DOI: 10.1016/j.jebo.2019.09.022
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    Keywords

    Subcontracting; Wage fairness;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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