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Wage incentive profiles in dual labour markets

  • Grassi, Emanuele
  • Di Cintio, Marco

We propose a modified version of the Shapiro-Stiglitz’s (1984) efficiency wage model by introducing temporary contracts in the standard setup. New theoretical insights emerge on the incentive problem faced by workers and firms. We argue that the existence of temporary contracts broaden the incentive menu available to employers and that the optimal incentive structure can be sustained as an equi- librium outcome only if permanent contracts do not disappear. We also provide an alternative explanation of the wage penalty suffered by temporary workers even if standard models of efficiency wages would predict higher compensations for workers facing a higher job loss risk.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32266.

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Date of creation: Jul 2011
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Handle: RePEc:pra:mprapa:32266
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