Job matching when employment contracts suffer from moral hazard

Dominique Demougin () and Carsten Helm

European Economic Review, 2011, vol. 55, issue 7, 964-979

Abstract: We consider a job matching model where the relationships between firms and wealth-constrained workers suffer from moral hazard. Specifically, effort on the job is non-contractible so that parties that are matched negotiate a bonus contract. Higher unemployment benefits affect the workers' outside option. The latter is improved for low-skilled workers. Hence they receive a larger share of the surplus, which strengthens their effort incentives and increases productivity. Effects are reversed for high-skilled workers. Moreover, raising benefit payments affects the proportion of successful matches, which induces some firms to exit the economy and causes unemployment to increase.

Keywords: Job matching; Incentive contracts; Unemployment benefits; Nash bargaining; Moral hazard (search for similar items in EconPapers)
JEL-codes: D82 E24 J41 J65 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:55:y:2011:i:7:p:964-979

DOI: 10.1016/j.euroecorev.2011.04.002

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