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Working time and wage rate differences: Revisiting the role of preferences and labor scarcity

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  • Contensou, François
  • Vranceanu, Radu

Abstract

In the labor economics literature, discrimination is often defined as occurring when identically productive workers, placed in the same working conditions, are assigned contracts involving, in particular, different hourly wage rates. This paper applies contract theory to explain how in some circumstances such differences take place, even if contract discrimination and productivity differences are strictly ruled out. It is assumed that worker types differ only in their consumption/leisure preferences and in their availability. A labor cost-minimizing firm offers a menu of labor contracts, and lets workers self-select. The model reveals external effects between types and the possibility of a paradoxical situation in which less demanding workers obtain a higher wage rate. A mixed employment regime always requires a minimum number (a quantum) of most demanding workers.

Suggested Citation

  • Contensou, François & Vranceanu, Radu, 2021. "Working time and wage rate differences: Revisiting the role of preferences and labor scarcity," Research in Economics, Elsevier, vol. 75(2), pages 164-175.
    • Handle: RePEc:eee:reecon:v:75:y:2021:i:2:p:164-175
    DOI: 10.1016/j.rie.2021.03.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Working hours; Wage gap; Labor market discrimination; Contract theory;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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