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Flexible Wage Contracts, Temporary Jobs and Worker Performance: Evidence from Italian Firms

Author

Listed:
  • Michele Battisti

    () (University of Palermo)

  • Giovanna Vallanti

    () (LUISS "Guido Carli" University)

Abstract

This paper focuses on the effects of decentralized wage schemes and temporary forms of employment on worker/firm performance. The effect of monetary incentives on worker effort and firm performance is a central topic in economics. According to the principal-agent paradigm, firms (the principal) have to link employees’ remuneration scheme to any verifiable indicator of performance in order to avoid opportunistic behaviours. The effectiveness of incentives on workers’ behaviour may vary significantly accordingly to the institutional/economic context in which the firms operate but in general the empirical evidence shows that financial incentives have the potential to exert strong effects on indicators of firm performance, such as productivity and worker absenteeism. Both from a theoretical and empirical point of view, the prediction on the effects of temporary forms of employment on effort and productivity is less neat. In light of these considerations, the aim of this paper is to provide further empirical evidence on whether and to what extent the performance related pay and the contract flexibility affect workers effort and in turn firm productivity for different type of workers (white collar vs. blue collar), working in workplaces characterized by different degree of uncertainty and risk and in firms operating in different economic and institutional settings using a sample of Italian firms. According to our results, wage flexibility appears to have a significant effect on effort and then on firm’s productivity and white collars are more responsive to monetary incentives than blue collars. Moreover, the presence of a large share of temporary contracts implies a lower dismissal probability for permanent workers and a deterioration in the working environment and then it reduces workers’ motivation and effort.

Suggested Citation

  • Michele Battisti & Giovanna Vallanti, 2011. "Flexible Wage Contracts, Temporary Jobs and Worker Performance: Evidence from Italian Firms," Working Papers CELEG 1105, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  • Handle: RePEc:lui:celegw:1105
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    References listed on IDEAS

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    More about this item

    Keywords

    Productivity; Effort; Performance-related-pay; Temporary contracts.;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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