Martin Kocher - Innsbruck/CREED. Economics Colloquia.
Martin Kocher - Innsbruck/CREED
Limited contracts - extended efficiency. Do collective contracts increase labor market efficiency?
Collective agreements on employees' wages prevail in many labor markets. In this paper we examine the question whether standardized wages within a firm can actually increase the efficiency of labor markets. We study this question in a repeated gift-exchange experiment with incomplete contracts where we extend the typical "one principal and one agent"-situation to a setting with multiple agents. We compare two market situations:
(i) principals have to offer the same wage to all agents they employ, versus (ii) principals can offer different wages to the agents they employ. Even though standard game theory and inequity aversion theories do not predict any treatment differences, we observe significantly higher wages - and in turn higher efforts - in case of standardized wages within firms. As a consequence, the overall market efficiency is increased. In the paper we discuss a convincing explanation for this result that is surprising at first sight.
Economics Colloquia: FEB, Roetersstraat 11, Room E1 51, Amsterdam
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