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Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry

Alan Krueger

The Quarterly Journal of Economics, 1991, vol. 106, issue 1, 75-101

Abstract: This paper estimates the difference in compensation between company-owned and franchisee-owned fast food restaurants. The contrast is of interest because contractual arrangements give managers of company-owned outlets less of an incentive to monitor and supervise employees. Estimates based on two data sets suggest that employee compensation is slightly greater at company-owned outlets than at franchisee-owned outlets. The earnings gap is 9 percent for assistant and shift managers and 2 percent for full-time crew workers. Furthermore, the tenure-earnings profile is steeper at company-owned restaurants. These findings suggest that monitoring difficulties influence the timing and generosity of compensation.

Date: 1991
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