Working time and wage rate differences: a contract theory approach

François Contensou () and Radu Vranceanu
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François Contensou: ESSEC Research Center, ESSEC Business School, Postal: ESSEC Research Center, BP 105, 95021 Cergy, France

No WP1913, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: In the labor economics literature, discrimination is often defined as a situation in which identically productive workers, placed in the same working conditions, are treated unequally, being assigned contracts involving in particular different hourly wage rates. In the proposed analysis, the contract theory approach is applied, contributing to explain how in some circumstances such differences take place, even if contract discrimination and productivity differences are strictly ruled out. It is assumed that workers types differ only in their leisure consumption preferences and in their availability. A labor cost-minimizing firm offers a menu of labor contracts, and let workers self-select. In this non-discriminating setting the model reveals the possibility of a paradoxical situation in which the less demanding workers obtain a higher wage rate. It brings out external effects between types and the existence of a quantum (a minimum number) of demanded workers for some type.

Keywords: Contract theory; Working hours; Wage gap; Labor market discrimination (search for similar items in EconPapers)
JEL-codes: D86 J31 J41 J71 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-08-11, Revised 2021-03-06
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Working Paper: Working time and wage rate differences: a contract theory approach (2021)
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