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Working conditions and regulation

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  • Weinschenk, Philipp

Abstract

Do employers invest sufficiently in the working conditions of employees? We examine this question in a simple principal-agent model. We show that, even though investment is contractible, the principal underinvests whenever her agent's alternatives are rather poor. This provides a reason for regulation. The indirect regulatory approach of taking measures that improve the agent's bargaining power or outside option at least weakly enhances the agent's well-being and welfare. The direct regulatory approach of demanding a certain standard of working conditions increases the principal's investment, but may nonetheless leave the agent's well-being unaffected and deteriorate welfare. This holds true since due to a standard, the principal may provide the agent with a lower-powered incentive scheme and implement a lower effort level.

Suggested Citation

  • Weinschenk, Philipp, 2017. "Working conditions and regulation," Labour Economics, Elsevier, vol. 44(C), pages 177-191.
    • Handle: RePEc:eee:labeco:v:44:y:2017:i:c:p:177-191
    DOI: 10.1016/j.labeco.2017.01.004
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    Cited by:

    1. Maurizio Caserta & Livio Ferrante & Francesco Reito, 2020. "Who pays for workplace benefits?," Manchester School, University of Manchester, vol. 88(4), pages 556-574, July.

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    More about this item

    Keywords

    Principal-agent model; Working conditions; Regulation; Standards;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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