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Wage Floors, Imperfect Performance Measures, and Optimal Job Design

  • Jenny Kragl

    ()

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

  • Anja Schöttner

    ()

    (Department of Economics, University of Konstanz, Germany)

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.

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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-36.

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Length: 35 pages
Date of creation: 14 Dec 2012
Date of revision:
Handle: RePEc:knz:dpteco:1236
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  1. Itoh, Hideshi, 2001. "Job design and incentives in hierarchies with team production," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 36(1), pages 1-17, January.
  2. Anja Schöttner, 2008. "Relational Contracts, Multitasking, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 138-162, May.
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  25. Amine, Samir & Lages Dos Santos, Pedro, 2011. "The influence of labour market institutions on job complexity," Research in Economics, Elsevier, vol. 65(3), pages 209-220, September.
  26. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
  27. Tracy R. Lewis & David E. M. Sappington, 2001. "Optimal Contracting with Private Knowledge of Wealth and Ability," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 21-44.
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