DOCSLIB.ORG

Labor: Decisions, Contracts and Organization

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Labor: Decisions, Contracts and Organization Chapter 52 LABOR: DECISIONS, CONTRACTS AND ORGANIZATION JAMES ROUMASSET and SANG-HYOP LEE Department of Economics, University of Hawaii at Manoa, Honolulu, HI Contents Abstract 2706 Keywords 2706 1. Introduction 2707 2. Theoretical and empirical issues 2708 2.1. The wedge-model farm-household decisions 2708 2.2. Farm size, transaction cost, and efficiency 2710 2.3. Separability and substitutability 2713 2.4. Share, piece-rate and wage contracts 2716 2.5. Efficiency wages 2720 2.6. Casual vs permanent workers 2721 3. Extensions: Toward a co-evolutionary view of agricultural organization 2723 3.1. Interdependency of markets, contracts, and farm-household organization 2723 3.2. The co-evolution of contracts, markets, and specialization 2724 3.3. Unresolved questions and conceptual challenges 2730 4. Policy considerations and directions for further research 2733 References 2734 We are grateful to Julie Anderson Schaffner, Robert Evenson, and Wallace Huffman for extensive sugges- tions and to Kimberly Burnett and Sean D’Evelyn for research assistance. Handbook of Agricultural Economics, Volume 3 Edited by Robert Evenson and Prabhu Pingali © 2007 Elsevier B.V. All rights reserved DOI: 10.1016/S1574-0072(06)03052-0 2706 J. Roumasset and S.-H. Lee Abstract We assess the development economics of on-farm employment with an eye toward pol- icy implications. What do we know and what additional research is needed? The older tradition of labor market dualism and some of the more modern research are seen to share a characteristic of misplaced exogeneity, and calls for asset redistribution and institutional regulation may need to be tempered by more fundamental explanations. Understanding labor contracts as a facilitator of specialization on the farm and in the larger economy is key. Integrating the wedge model of farm behavior with agency-cost explanations of organization will provide a powerful analytical tool. Ultimately, a gen- eral equilibrium view with endogenous institutions will deepen our understanding of why total costs of coordination increase even as turnover costs per worker decline and how public policy can facilitate that cooperation. Keywords labor contracts, transaction costs, farm size, specialization, extent of the market JEL classification: J43, Q12, J41, O13 Ch. 52: Labor: Decisions, Contracts and Organization 2707 1. Introduction The purpose of this chapter is to synthesize economic wisdom about the nature and causes of on-farm employment, labor contracts, and the policy implications thereof. We attempt to do justice to Adam Smith by recognizing that the division of labor is central to the nature of the agricultural firm, the evolution of rural institutions, and agricultural development. Questions addressed include the following. What are the key restrictive assumptions in the conceptual framework that have shaped most theoretical and empir- ical work to date? How might some of these assumptions be relaxed in order to enrich empirical inquiry and deepen our understanding of the farm employment relationship? What are the implications of on-farm labor relations and productivity for regulations of contracting, land reform and other government interventions? On-farm employment issues are important for rural development and poverty allevi- ation strategies. Many rural residents are landless laborers, who tend to be poor, and whose entire way of life – income, the way they spend their day, the uncertainty they face each day about what comes next – is shaped by what happens in rural labor mar- kets. Many other rural residents are small farmers, who also tend to be poor, for whom the ability to work in agricultural labor markets may help them maintain consumption when shocks hit and for whom the ability to hire in agricultural labor markets may be important in making productive use of assets they already own, and in shaping the at- tractiveness of possible investments. We think that development in general involves a reallocation of labor from traditional to commercial agriculture and from agriculture to non-agriculture (whether rural or urban non-agricultural), and labor markets are im- portant in bringing this reallocation about. Economists have taken a particular interest in agricultural labor contracts. The complexity and diversity of labor contracts makes it difficult to assess the level and direction of change in both the cost of labor to employers and the level of living attained by agricultural laborers. Moreover, specific features of labor contracts have led observers to be concerned about both inefficiency and exploita- tion in these markets. In Section 2, we review the conventional wisdom about labor supply and demand in the agricultural household and the nature and consequences of contracts for hired labor. Studies can be roughly classified into two schools of thought. One is Development Microeconomics [e.g., Bardhan and Udry (1999)] which rests on modern theory and recent empirical evidence, but which often employs blackboard economics to discover preconceived allocative inefficiencies. The other is the efficiency school [e.g., Yang (2003)], which aims to provide fundamental explanations of the nature and causes of household decision-making and the organization of production, albeit with models that presume efficiency. This leads naturally to the discussion in Section 3 of promising new directions of research and remaining challenges. Section 4 provides some thoughts on policy and directions for future research. 2708 J. Roumasset and S.-H. Lee 2. Theoretical and empirical issues 2.1. The wedge-model farm-household decisions The essence of the Coase Theorem is that without transaction costs economic organiza- tion is indeterminate. Large farms could hire labor or workers could equivalently rent land. Moreover, there would be no need to consider the farm-household as a decision- making unit. Farms would maximize profits and the household would (separately) spend household income, be it earned from the farm or elsewhere. This would leave us unable to explain the stylized facts of farmer behavior and agricultural organization, however, and unable to meaningfully assess the consequences of proposed policy reforms. In the presence of transaction costs, farm and household decisions are interdependent and the farm-household model becomes an appropriate centerpiece for decision-making regarding family and hired labor. Consider a single-period farm-household model: max u(a, c, l; z) w.r.t. a,c,l,Lh,Lf subject to budget, time, and production constraints pss + wsLs + y = c + pbb + whLh, ¯ L = Lf + Ls + l, f(Lh,Lf ; A) + b = a + s, where a: food consumption, c: non-food consumption, l:leisure, z: farm characteristics, Lh: labor hired to work on farm at wage wh, Lf : labor supplied by the household to work on farm, Ls: labor supplied by the household to work off farm at wage ws, y: other exogenous income, ps: price of food sold by the household, s: quantity of food sold by the household, pb: price of food bought by the household, b: quantity of food bought by the household, L¯ : total labor endowment of the household, f(Lh,Lf ; A): food production function, A: farm characteristics. To highlight the role of labor, we assume that non-labor inputs are fixed. Rearranging budget and time constraints yields c + wl = wL¯ + π + y, Ch. 52: Labor: Decisions, Contracts and Organization 2709 Figure 1. Segmentation of farm labor demand and household supply. where w is the shadow wage with ws w wh, and π = pf (Lf ,Lh; A) − w(Lf + Lh) is shadow profit with shadow price ps p pb. The utility-maximizing farm- household can be said to be equivalently maximizing shadow profits. This is illustrated below. Figure 1 depicts three possible cases, which shows the household labor supply sched- ule of a representative farm household and three labor-demand schedules, depending on (quality-adjusted) farm size. For D1, the family exports its excess labor (Lh = 0), and the relevant shadow price of labor is ws, the selling wage after deducting journey to work and other neces- sary expenses from the nominal wage. For D3, the farm-household imports hired labor (Ls = 0), and the shadow wage is wh, the hiring wage after including the employer’s agency cost, recruiting and supervision costs and the residual costs of labor shirking (see Section 2.2). In both cases, the costs embodied in low alternative wages force fam- ily to work on other farms or to hire workers beyond the point when marginal product of labor equals nominal wage rate. If labor demand intersects household supply in the intermediate range between wh and ws, the shadow wage rate is given by the house- hold’s marginal opportunity cost of labor. Accordingly, the rational farm household can be said to be maximizing shadow profits based on the shadow-wage schedule: ⎧ ⎨ ws,L<L1, = w ⎩ wh,L>L2, S, L1 <L<L2. 2710 J. Roumasset and S.-H. Lee In this version of the model, both family and hired labor are implicitly in effective labor units, i.e., after deducting any costs of labor shirking. This shadow-profit-maximization form of the model can be used to estimate farm demand for labor and other inputs without having to fully specify household demands and supplies. By assuming that farm-households do not switch categories in response to small changes in price, the “wedge model” can also be used to determine the composi- tion between hired and family labor, as well as labor demand. Using simulations based on African parameters, de Janvry, Fafchamps and Sadoulet (1991) estimate the demand elasticity of leisure with respect to output price to be 0.27 for market-oriented farm households but only 0.06 for self-sufficient farmers. The elasticity of demand for hired labor was 0.61 for market-oriented farm-households and zero (by definition) for the self-sufficient group. In situations where a substantial proportion of farm households are self sufficient, these results help to reconcile observations of non-responsiveness with the assumption of (shadow) profit maximization.
Load more

Recommended publications
  • Efficiency Wages
    1 Efficiency wages Neoclassical theory treats labor as a hired input in much the same way as • capital but workers, unlike capital, can chose levels of effort • and such choice has important effects when information is imperfect • 2 Main feature in efficiency wages: firms unilaterally set wages, and choose not to cut wages down to the market-clearing level, because of the detrimental effect that this would have on worker effort, motivation, recruitment, retention, and ultimately on firm profits. Several efficiency wages mechanisms have been put forward in the literature: Higher wages help reduce shirking when effort is not perfectly observed • (Shapiro and Stiglitz AER 1984); Higher wages improve worker morale and effort; “gift exchange” (Akerlof • QJE 1982); Higher wages reduce worker quits and labor turnover costs (Salop AER • 1979); Higher wages attracts more applicants and increase hires (Weiss JPE 1980). • 3 1 The shirking model Shapiro C. and J Stiglitz (1984) “Equilibrium Unemployment as a Worker Dis- cipline Device”, American Economic Review. Involuntary unemployment is driven by problems of imperfect information • characterizing employee-employer relationships: — workers (unlike capital) choose level of effort — employers are unable to costlessly monitor worker effort. In the competitive paradigm all workers are paid their reservation wage and • there is no unemployment. Whenever a worker is caught shirking, he is dismissed and immediately • rehired in the outside labor market at the pre-layoff wage. 4 With imperfect monitoring and full employment, workers will choose to shirk, • as shirking involves zero costs and saves workers some effort. A firm willing to reduce shirking would pay more than the ongoing wage, • so as to inflict a cost on those who are found shirking and need to look for jobs in the outside labor market.
    [Show full text]
  • Employer's Moral Hazard and Wage Rigidity
    Facoltà di Economia di Forlì Laurea Magistrale in Economia Sociale Working Papers 118 Employer moral hazard and wage rigidity. The case of worker-owned and investor-owned firms. Marina Albanese University of Naples, Federico II Cecilia Navarra University of Turin and Namur, Belgium Ermanno Tortia University of of Trento Febbraio 2013 Info: AICCON - Tel. 0543.62327 - [email protected] - www.aiccon.it Employer moral hazard and wage rigidity The case of worker-owned and investor-owned firms Marina Albanese, University of Naples, Federico II: [email protected] Cecilia Navarra, University of Turin and Namur, Belgium: [email protected] Ermanno Tortia, University of Trento: [email protected] Abstract The standard explanation of wage rigidity in principal agent and in efficiency wage models is related to worker risk-aversion. However, these explanations do not consider at least two important classes of empirical evidence: (1) In worker cooperatives workers appear to behave in a less risk averse way than in for profit firms and to accept fluctuating wages; (2) The emerging experimental evidence on the employment contract shows that most workers prefer higher but more uncertain wages to lower fixed wages. Workers do not appear to express a preference for fixed wages in all situations and different ownership forms, in our case worker cooperatives and for-profit firms, behave in different ways when dealing with the trade-off between wage rigidity and employment fluctuations. More specifically, worker cooperatives are characterized, in relative terms, by fixed employment levels and fluctuating wages, while for-profit firms are characterized by fixed wages and fluctuating employment.
    [Show full text]
  • What We Know and Do Not Know About the Natural Rate of Unemployment
    Journal of Economic Perspectives—Volume 11, Number 1—Winter 1997—Pages 51–72 What We Know and Do Not Know About the Natural Rate of Unemployment Olivier Blanchard and Lawrence F. Katz lmost 30 years ago, Friedman (1968) and Phelps (1968) developed the concept of the "natural rate of unemployment." In what must be one of Athe longest sentences he ever wrote, Milton Friedman explained: "The natural rate of unemployment is the level which would be ground out by the Wal- rasian system of general equilibrium equations, provided that there is imbedded in them the actual structural characteristics of the labor and commodity markets, in- cluding market imperfections, stochastic variability in demands and supplies, the cost of gathering information about job vacancies and labor availabilities, the costs of mobility, and so on." Over the past three decades a large amount of research has attempted to formalize Friedman's long sentence and to identify, both theo- retically and empirically, the determinants of the natural rate. It is this body of work we assess in this paper. We reach two main conclusions. The first is that there has been considerable theoretical progress over the past 30 years. A framework has emerged, organized around two central ideas. The first is that the labor market is a market with a high level of traffic, with large flows of workers who have either lost their jobs or are looking for better ones. This by itself implies that there must be some "frictional unemployment." The second is that the nature of relations between firms and workers leads to wage setting that often differs substantially from competitive wage setting.
    [Show full text]
  • Nber Working Paper Series
    NBER WORKING PAPER SERIES GOOD JOBS, BAD JOBS, AND TRADE LIBERALIZATION Donald R. Davis James Harrigan Working Paper 13139 http://www.nber.org/papers/w13139 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 2007 Much of this paper was written while Davis was visiting, and Harrigan was employed by, the Federal Reserve Bank of New York. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. The authors are grateful to Elhanan Helpman and Oleg Itskhoki for very helpful comments on an early version of this paper, and to seminar participants at Columbia, Fordham, Harvard, Princeton, Yale and the NBER. © 2007 by Donald R. Davis and James Harrigan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Good Jobs, Bad Jobs, and Trade Liberalization Donald R. Davis and James Harrigan NBER Working Paper No. 13139 May 2007, Revised July 2010 JEL No. F1,F16,J2,J31 ABSTRACT How do labor markets adjust to trade liberalization? Leading models of intraindustry trade (Krugman (1981), Melitz (2003)) assume homogeneous workers and full employment, and thus predict that all workers win from trade liberalization, a conclusion at odds with the public debate. Our paper develops a new model that merges Melitz (2003) with Shapiro and Stiglitz (1984), so also links product market churning to labor market churning. Workers care about their jobs because the model features aggregate unemployment and jobs that pay different wages to identical workers.
    [Show full text]
  • Efficiency Wage Theories: a Partial Evaluation
    NBER WORKING PAPER SERIES EFFICIENCY WAGE THEORIES: A PARTIAL EVALUATION Lawrence F. Katz Working Paper No. 1906 NATIONAL BUREAU OF ECONOMIC RESEARCH 1060 Massachusetts Avenue Cambridge, MA 02138 April 1986 This is a revised version of a paper presented at the NBER Conference on Macroeconomics held in Cambridge, Massachusetts on March 7 and 8, 1986. 1 am indebted to William Dickens for numerous discussions and for comments on previous drafts of this paper; a significant part of this paper grew out of our joint work. I thank George Akerlof, Joe Altonji, Stan Fischer, Kevin Lang, Lawrence Summers, Janet Yellen, and the conference participants for helpful comments. I am grateful to Phil Bokovoy and Elizabeth Bishop for expert research assistance. The Institute of Industrial Relations at U.C. Berkeley provided research support. All remaining errors are my own. The research reported here is part of the NBER's research program -in Labor Studies. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research. NBER Working Paper #1906 April 1986 Efficiency Wage Theories: A Partial Evaluation ABSTRACT This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment, segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics.
    [Show full text]
  • Efficiency Wages, Unemployment and Welfare: a Trade Theorists' Guide
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Albert, Max; Meckl, Jürgen Working Paper Efficiency wages, unemployment and welfare: A trade theorists' guide Diskussionsbeiträge - Serie II, No. 348 Provided in Cooperation with: Department of Economics, University of Konstanz Suggested Citation: Albert, Max; Meckl, Jürgen (1997) : Efficiency wages, unemployment and welfare: A trade theorists' guide, Diskussionsbeiträge - Serie II, No. 348, Universität Konstanz, Sonderforschungsbereich 178 - Internationalisierung der Wirtschaft, Konstanz This Version is available at: http://hdl.handle.net/10419/101659 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen
    [Show full text]
  • Why Does the Minimum Wage Have No Discernible Effect on Employment? John Schmitt
    Why Does the Minimum Wage Have No Discernible Effect on Employment? John Schmitt February 2013 Center for Economic and Policy Research 1611 Connecticut Avenue, NW, Suite 400 Washington, D.C. 20009 202-293-5380 www.cepr.net CEPR Why Does the Minimum Wage Have No Discernible Effect on Employment? i Contents Executive Summary ........................................................................................................................................... 1 Introduction ........................................................................................................................................................ 2 Empirical Research on the Minimum Wage .................................................................................................. 2 Pre-2000s ....................................................................................................................................................... 2 Since the early 2000s .................................................................................................................................... 4 Meta-studies .................................................................................................................................................. 4 Reviews .......................................................................................................................................................... 6 A closer look at several key recent studies ...............................................................................................
    [Show full text]
  • Downward Nominal and Real Wage Rigidity Survey Evidence from European Firms
    WAGE DYNAMICS WORKING PAPER SERIES NETWORK NO 1105 / NOVEMBER 2009 DOWNWARD NOMINAL AND REAL WAGE RIGIDITY SURVEY EVIDENCE FROM EUROPEAN FIRMS by Jan Babecký, Philip Du Caju, Theodora Kosma, Martina Lawless, Julián Messina and Tairi Rõõm r WORKING PAPER SERIES NO 1105 / NOVEMBER 2009 WAGE DYNAMICS NETWORK DOWNWARD NOMINAL AND REAL WAGE RIGIDITY SURVEY EVIDENCE FROM EUROPEAN FIRMS 1 by Jan Babecký 2 , Philip Du Caju 3 , Theodora Kosma 4 , Martina Lawless 5 , Julián Messina 6 and Tairi Rõõm 7 In 2009 all ECB publications This paper can be downloaded without charge from feature a motif http://www.ecb.europa.eu or from the Social Science Research Network taken from the €200 banknote. electronic library at http://ssrn.com/abstract_id=1499004. 1 The work was conducted within the framework of the Wage Dynamics Network coordinated by the European Central Bank. We thank for helpful comments Giuseppe Bertola, Aurelijus Dabušinskas, Gabriel Fagan, Kamil Galuščák, Jaromír Gottwald, Jan Hošek, Juan Jimeno, Ana Lamo, Frank Smets, Kateřina Šmídková, Jarkko Turunen, the participants of the WDN meetings and an anonymous referee of the ECB WP Series. The opinions expressed in this paper are solely those of the authors and do not necessarily reflect the views of the European Central Bank or their respective institutions. 2 Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic; e-mail: [email protected] 3 National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium; e-mail: [email protected] 4 Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece; e-mail: [email protected] 5 Central Bank and Financial Services Authority of Ireland, Dame Street, Dublin 2, Ireland; e-mail: [email protected] 6 The World Bank, 1818 H Street, NW, Washington, DC 20433, USA (and University of Girona); ona); e-mail: [email protected] 7 Bank of Estonia, Estonia pst.
    [Show full text]
  • Efficiency Wages and Unemployment
    International Contributions to Labour Studies (1994) 4, 1-20 Efficiency wages and unemployment Moira Wilson* 1. Introduction Efficiency wage theory-the idea that it may be efficient for firms to pay wages in excess of their market clearing levels-rests on two central propositions: (i) that there is a positive causal relationship between the wage rate paid and the productivity of labour; and (ii) that the effect of wages on productivity can be such that a drop in the wage rate paid will cause profits to fall. These propositions have been used as the basis of a series of dual labour market models in which payment of efficiency wages in one sector of the labour market may generate involuntary unemployment in equilibrium. The purpose of this paper is to assess the relevance and explanatory power of these models from two distinct vantage points: (i) the role they ascribe to unemployment benefits; and (ii) their explanations for the observed distribution of unemployment across groups of workers. I argue that the portrayal of the relation­ ship between unemployment benefits and the level of unemployment is problematic because it neglects the mediating effects of real world conditions of entitlement and other dynamics of unemployment. Explanations for the incidence of unemployment are also problematic: when the importance of efficiency wages as a means of recruiting, retraining or motivating workers is qualified, the link models make between the nature of jobs, the skills of workers and the incidence of efficiency wages breaks down; when the assumption of strict labour market duality is relaxed, the link made between the distribution of efficiency wages and the distribution of unemployment cannot be sustained; and when the importance of non-competing groups and discrimination is taken into account, the link made between the wage-productivity relationship of individual workers and the probability that they will experience unemployment does not hold.
    [Show full text]
  • Empowerment and Efficiency: the Economics of Agrarian Reform
    ^CH^J tf §5 IHSiJARIES g M.I.T. LIBRARIES - DEWEY Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium Member Libraries http://www.archive.org/details/empowermentefficOObane dewev working paper department of economics Empowerment And Efficiency: The Economics Of Agrarian Reform Abhijit Banerjee Paul J. Gertler Maitreesh Ghatak October 1998 massachusetts institute of technology 50 memorial drive Cambridge, mass. 02139 WORKING PAPER DEPARTMENT OF ECONOMICS Empowerment And Efficiency: The Economics Of Agrarian Reform Abhijit Banerjee Paul J. Gertler Maitreesh Ghatak No. 98-22 October 1998 MASSACHUSETTS INSTITUTE OF TECHNOLOGY 50 MEMORIAL DRIVE CAMBRIDGE, MASS. 02142 MisACHiisitrs institute OF TECHNOLOGY LIBRARIES Empowerment and Efficiency : The Economics of Agrarian Reform* ** *** Abhijit V. Banerjee * Paul J. Gertler Maitreesh Ghatak * Department oj Economics, M.I.T. **Haas School of Business, University of California at Berkeley "* Department of Economics, University of Chicago and STICERD, LSE. Abstract We analyze the effect of agricultural tenancy laws that offer security of tenure to tenants and regulate the share of output they should pay the landlord as rent on farm productivity. Theoretically, the net impact of tenancy reform is shown to be a combination of two effects. A bargaining power effect tends to improve the crop-share of tenants and hence improves their incentives in general. A security of tenure effect tends to encourage investment by the tenant on one hand, but on the other hand eliminates the possibility of using eviction threats as an incentive device by the landlord. Analysis of evidence on how contracts and productivity changed after a tenancy reform program was implemented in the Indian state of West Bengal in the late seventies suggests that tenancy reform played an important role in increasing agricultural productivity.
    [Show full text]
  • Lectures in Labor Economics
    Lectures in Labor Economics Daron Acemoglu David Autor Contents Part 1. Introduction to Human Capital Investments 1 Chapter 1. The Basic Theory of Human Capital 3 1. General Issues 3 2. Uses of Human Capital 4 3. Sources of Human Capital Differences 6 4. Human Capital Investments and The Separation Theorem 8 5. Schooling Investments and Returns to Education 11 6. A Simple Two-Period Model of Schooling Investments and Some Evidence 13 7. Evidence on Human Capital Investments and Credit Constraints 16 8. The Ben-Porath Model 20 9. Selection and Wages–The One-Factor Model 26 Chapter 2. Human Capital and Signaling 35 1. The Basic Model of Labor Market Signaling 35 2. Generalizations 39 3. Evidence on Labor Market Signaling 44 Chapter 3. Externalities and Peer Effects 47 1. Theory 47 2. Evidence 51 3. School Quality 54 4. Peer Group Effects 55 Part 2. Incentives, Agency and Efficiency Wages 69 Chapter 4. Moral Hazard: Basic Models 71 1. The Baseline Model of Incentive-Insurance Trade off 72 2. Incentives without Asymmetric Information 74 3. Incentives-Insurance Trade-off 76 4. The Form of Performance Contracts 80 5. The Use of Information: Sufficient Statistics 82 Chapter 5. Moral Hazard with Limited Liability, Multitasking, Career Concerns, and Applications 85 1. Limited Liability 85 iii Lectures in Labor Economics 2. Linear Contracts 89 3. Evidence 94 4. Multitasking 96 5. Relative Performance Evaluation 99 6. Tournaments 100 7. Application: CEO Pay 106 8. The Basic Model of Career Concerns 108 9. Career Concerns Over Multiple Periods 114 10. Career Concerns and Multitasking: Application to Teaching 115 11.
    [Show full text]
  • Efficiency Wages and Work Incentives in Urban and Rural China 1
    Efficiency Wages and Work Incentives in Urban and Rural China 1 Belton M. Fleisher corresponding author Department of Economics, The Ohio State University 1945 North High Street Columbus, OH 43210 E-mail: fl[email protected] and Xiaojun Wang Department of Economics, University of Hawaii at Manoa Honolulu, HI 96822 E-mail: [email protected] Running Head: Wages and Work Incentives in China 1 This paper is forthcoming in Journal of Comparative Economics December 2001. Efficiency Wages and Work Incentives in Urban and Rural China Abstract This paper examines incentive-wage effects for production and for managerial/technical workers in both urban and rural Chinese non-agricultural enterprises. We report strong evidence ofproductivity-enhancing wage behavior among enterprises in all ownership categories. There is also evidence that firms paying higher efficiency wages experi- ence less shirking among their employees. We find that the profit-maximizing potential ofincentive-wage setting is not fullyexploited, although there is weak evidence that joint ventures come closer to profit-maximizing behavior at this intensive margin of wage/employment behavior than do collectives or state-owned enterprises. Keywords: Efficiency Wages, Incentive Effects, Productivity, Transition Economies, Chi- nese Economy JEL-Codes: P23, J31, O15 2 1 Introduction and Literature Review This paper is an empirical investigation ofthe efficiency-wage effect in Chinese labor markets. The market reforms that began in agriculture in the late 1970s spread unevenly and gradually to both rural and urban industrial enterprises and opened the door to profit-seeking behavior in product and input markets. State-owned, collective, and privately owned firms have come under increasing competitive pressure to reduce costs, ofwhich labor costs are among the most important.
    [Show full text]