Wage Fairness in a Subcontracted Labor Market

Arbeitspapier

Labor market subcontracting is a global phenomenon. This paper presents a theory of wage fairness in a subcontracted labor market, where workers confront multi-party employment relationships and deep wage inequities between regular and subcontractor-mediated hires. We show that subcontracting derives its appeal from a downward revision of workers' fair wage demand when producers delegate employment decisions down the supply chain. Furthermore, subcontracting creates a holdup problem, resulting in wages that workers deem unfair, along with adverse worker morale consequences in equilibrium. These insights reveal the efficiency costs of subcontracting as an employer strategy to redress workers' demand for fair wages.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 12609

Classification and Topics

• Classification: Wirtschaft ; Labor Contracts ; Particular Labor Markets: Public Policy ; Institutions and Growth
• Subject: wage fairness ; subcontracting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Basu, Arnab K. ; Chau, Nancy H. ; Soundararajan, Vidhya
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/207434
• Last update: 10.03.2025, 11:43 AM CET