Minimum Wages and Relational Contracts

Konferenzbeitrag

The need to give incentives is usually absent in the literature on minimum wages. However, especially in the service sector it is important how well a job is done, and employees must be incentivized to perform accordingly. Furthermore, many aspects regarding service quality cannot be verified, which implies that relational contracts have to be used to provide incentives. The present article shows that in this case, a minimum wage increases implemented effort, i.e., realized service quality, as well as the efficiency of an employment relationship. Hence, it can be explained why productivity and service quality went up after the introduction of the British National Minimum Wage, and that this might actually have caused a more efficient labor market. Furthermore, if workers have low bargaining power, a higher minimum wage also increases firm profits and consequently employment. Therefore, the present article presents a new perspective on reasons for why minimum wages often have no or only negligible employment effects.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Organizational Economics: Wages in the Dynamics of Employment Relations ; No. C23-V1

Classification and Topics

• Classification: Wirtschaft ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Firm Behavior: Theory ; Wage Level and Structure; Wage Differentials

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fahn, Matthias
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/145659
• Last update: 10.03.2025, 11:41 AM CET