Incentives, Wages, Employment, and the Division of Labor in Teams

Michael Rauh ()

No 2013-16, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: We develop a theory of incentives, wages, and employment in the context of team production. A central insight is that specialization and division of labor not only improve productivity but also increase e ort and the sensitivity of e ort to incentives under moral hazard. We show that incentives and employment are complements for the principal when the positive e ects of specialization and division of labor outweigh the negative e ects of increased idiosyncratic risk and are substitutes otherwise. We provide new characterizations of the partnership, the rm, and the role of the budget-breaker that are quite di erent from the classical literature.

Keywords: budget-breaker; division of labor; employment; endogenous team size; incentives; partnerships; size-wage di erential; specialization; teams; wages (search for similar items in EconPapers)
JEL-codes: D02 D21 D86 L25 M5 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-cta and nep-hrm
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http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2013-16-rauh.pdf (application/pdf)

Related works:
Journal Article: Incentives, wages, employment, and the division of labor in teams (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:iuk:wpaper:2013-16

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