Informal Incentives and Labor Markets

Matthias Fahn () and Takeshi Murooka ()
Additional contact information
Matthias Fahn: University of Hong Kong
Takeshi Murooka: Osaka University

No 17042, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates how labor-market tightness affects market outcomes if firms use informal, self-enforcing, agreements to motivate workers. We characterize profit-maximizing equilibria and show that an increase in the supply of homogenous workers can increase wages. Moreover, even though all workers are identical in terms of skills or productivity, profit-maximizing discrimination equilibria exist. There, a group of majority workers are paid higher wages than a group of minority workers, who may even be completely excluded. Minimum wages can reduce such discrimination and increase employment. We discuss how these results relate to empirical evidence on downward wage rigidity, immigration, the gender pay gap, and credentialism.

Keywords: informal incentives; labor supply; immigration; wage discrimination; minimum wage (search for similar items in EconPapers)
JEL-codes: D21 D86 J21 J38 J61 J71 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2024-06
New Economics Papers: this item is included in nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: Economic Journal, 2025, 135 (665), 144–179

Downloads: (external link)
https://docs.iza.org/dp17042.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp17042

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().