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Wage incentive profiles in dual labour markets

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  • Grassi, Emanuele
  • Di Cintio, Marco

Abstract

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.

Suggested Citation

  • Grassi, Emanuele & Di Cintio, Marco, 2011. "Wage incentive profiles in dual labour markets," MPRA Paper 32266, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32266
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    References listed on IDEAS

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    More about this item

    Keywords

    Dual labour market; efficiency wages; wage differentials;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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