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Screening, Competition, and Job Design: Economic Origins of Good Jobs

  • Bartling, Björn

    ()

    (University of Zurich)

  • Fehr, Ernst

    ()

    (University of Zurich)

  • Schmidt, Klaus M.

    ()

    (University of Munich)

In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These "high-performance work systems" are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4710.

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Length: 46 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published in: American Economic Review, 2012, 102 (2), 834-864
Handle: RePEc:iza:izadps:dp4710
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