When are wages cut? The roles of incomplete contracts and employee involvement

Marco Fongoni, Daniel Schaefer () and Carl Singleton
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Daniel Schaefer: JKU - University of Linz - Johannes Kepler Universität Linz
Authors registered in the RePEc Author Service: Daniel Schäfer

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Abstract: We develop a model of incomplete employment contracts such that employees have some discretion over effort, which depends on their work morale. Nominal wage cuts have a strong negative effect on morale, while employee involvement in workplace decision-making tends to increase morale. We derive predictions on how these two mechanisms affect the decisions of firms to cut nominal wages. Using matched employer-employee and manager survey data from Great Britain, we find support for our model: nominal wage cuts are only half as likely when managers think that employees have some discretion over how they perform their work, but this reduced likelihood recovers partially when employees are involved in the decision-making process at their workplace.

Keywords: Employer-employee data; Wage rigidity; Reciprocity; Workplace relations (search for similar items in EconPapers)
Date: 2023-01-19
New Economics Papers: this item is included in nep-eur, nep-hrm and nep-lma
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-03953201
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Citations: View citations in EconPapers (2)

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Working Paper: When are wages cut? The roles of incomplete contracts and employee involvement (2023)
Working Paper: When are wages cut? The roles of incomplete contracts and employee involvement (2023)
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