Informal Incentives and Labor Markets

Arbeitspapier

This paper theoretically investigates how labor-market tightness affects market outcomes if firms use informal and self-enforcing agreements to motivate workers. We characterize profit-maximizing equilibria and derive the following results. First, an increase in the supply of homogenous workers can increase wages. Second, even though all workers are identical in terms of skills or productivity, a discrimination equilibrium exists in which a group of majority workers are paid higher wages than a group of minority workers. Third, minimum wages can reduce such discrimination and increase employment. We discuss how these results are consistent with empirical evidence on immigration and a gender pay gap, and provide new testable implications.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9740

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Economics of Contract: Theory ; Labor Force and Employment, Size, and Structure ; Wages, Compensation, and Labor Costs: Public Policy ; Geographic Labor Mobility; Immigrant Workers ; Labor Discrimination
• Subject: informal incentives ; labor supply ; immigration ; wage discrimination ; minimum wage

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fahn, Matthias ; Murooka, Takeshi
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/260870
• Last update: 10.03.2025, 11:46 AM CET