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Wage Floors and Optimal Job Design

Author

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  • Kragl, Jenny
  • Schöttner, Anja

Abstract

We analyze the effects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within firms. In our model, two tasks contribute to non-verifiable firm value and affect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence of a wage floor, it is optimal to assign the tasks to different agents whenever the agents' reservation utility is not too large. Under such a job design, the principal can tailor incentives according to each task's marginal productivity. By contrast, with a relatively large wage floor, the principal gradually lowers effort incentives to avoid rent payments to the agents, even before the wage floor exceeds the agents' reservation utility. If the wage floor is sufficiently large, the principal hires only one agent even though this leads to a distortion of effort across tasks or the non-execution of one task altogether.

Suggested Citation

  • Kragl, Jenny & Schöttner, Anja, 2011. "Wage Floors and Optimal Job Design," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48731, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc11:48731
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    File URL: https://www.econstor.eu/bitstream/10419/48731/1/VfS_2011_pid_64.pdf
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    References listed on IDEAS

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    Cited by:

    1. Schmitz, Patrick W., 2013. "Job design with conflicting tasks reconsidered," European Economic Review, Elsevier, vol. 57(C), pages 108-117.

    More about this item

    Keywords

    Job Design; Moral Hazard; Multitasking; Wage Floor; Minimum Wage; Limited Liability;

    JEL classification:

    • 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

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