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FIXED‐WAGES, WAGE DIFFERENTIALS AND WORKER HETEROGENEITIES
Author(s) -
CARLIER GUILLAUME,
GAUMONT DAMIEN
Publication year - 2008
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2008.00352.x
Subject(s) - unobservable , wage , economics , incentive , productivity , labour economics , preference , wage rate , microeconomics , econometrics , macroeconomics
We study incentive‐compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two‐period model. We first reduce this three‐dimensional problem to a standard one‐dimensional screening problem. Features of second‐best labour contracts provide a rationale for both fixed‐wages and wage differentials.