Minimum Wages and Excessive Effort Supply

Matthias Kräkel () and Anja Schöttner

No 264, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: It is well-known that, in static models, minimum wages generate positive worker rents and, consequently, ineffciently low effort. We show that this result does not necessarily extend to a dynamic context. The reason is that, in repeated employment relationships, firms may exploit workers’ future rents to induce excessively high effort. Creation-Date: 2009-07

Keywords: bonuses; limited liability; minimum wages (search for similar items in EconPapers)
JEL-codes: D82 D86 J33 (search for similar items in EconPapers)
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Working Paper: Minimum Wages and Excessive Effort Supply (2009)
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