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Wage Floors, Imperfect Performance Measures, and Optimal Job Design

Author

Listed:
  • Jenny Kragl

    () (Department of Governance &Economics, EBS University für Wirtschaft und Recht Wiesbaden, Germany)

  • Anja Schöttner

    () (Department of Economics, University of Konstanz, Germany)

Abstract

We analyze the effects of wage floors on optimal job design in a moral-hazard model with asymmetric tasks and imperfect aggregate performance measurement. Due to cost advantages of specialization, assigning the tasks to different agents is efficient. A sufficiently high wage floor, however, induces the principal to dismiss one agent or to even exclude tasks from the production process. Imperfect performance measurement always lowers profit under multitasking, but may increase profit under specialization. We further show that variations in the wage floor and the agents' reservation utility have significantly different effects on welfare and optimal job design.

Suggested Citation

  • Jenny Kragl & Anja Schöttner, 2012. "Wage Floors, Imperfect Performance Measures, and Optimal Job Design," Working Paper Series of the Department of Economics, University of Konstanz 2012-36, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1236
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    References listed on IDEAS

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    Cited by:

    1. Schmitz, Patrick W., 2019. "Incomplete contracts, limited liability, and the optimality of joint ownership," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    2. Kräkel, Matthias & Müller, Daniel, 2014. "Merger Performance and Managerial Incentives," Bonn Econ Discussion Papers 02/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Müller, Daniel & Schmitz, Patrick W., 2020. "The Right to Quit Work: An Efficiency Rationale for Restricting the Freedom of Contract," CEPR Discussion Papers 15567, C.E.P.R. Discussion Papers.
    4. Schöttner, Anja & Rohlfing-Bastian, Anna, 2015. "Optimal Allocation of Decision-Making Authority and the Provision of Incentives under Uncertainty," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113200, Verein für Socialpolitik / German Economic Association.
    5. Carsten Helm & Franz Wirl, 2021. "Multitasking: incentivizing agents differing either in their work ethic or intrinsic motivation," Journal of Economics, Springer, vol. 132(1), pages 41-65, January.
    6. Buchen, Clemens & Kragl, Jenny & Palermo, Alberto, 2021. "Specialist vs. Generalist: Efficiency in Multitasking," Economics Letters, Elsevier, vol. 199(C).

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    More about this item

    Keywords

    Job Design; Limited Liability; Minimum Wage; Moral Hazard; Multitasking; Performance Measurement;
    All these keywords.

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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