Wage floors and optimal job design

Arbeitspapier

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-veriable 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 01/2011

Classification and Topics

• Classification: Wirtschaft ; Personnel Economics: Firm Employment Decisions; Promotions ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Personnel Economics: Labor Management ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory
• Subject: Job Design ; Moral Hazard ; Multitasking ; Wage Floor ; Minimum Wage ; Limited Liability ; Arbeitsgestaltung ; Lohnniveau ; Mindestlohn ; Moral Hazard ; Prinzipal-Agent-Theorie ; Leistungsanreiz ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kragl, Jenny ; Schöttner, Anja
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/71897
• Last update: 10.03.2025, 11:41 AM CET