Wage Fairness in a Subcontracted Labor Market

Arnab Basu, Nancy Chau and Vidhya Soundararajan

No 12609, IZA Discussion Papers from IZA Network @ LISER

Abstract: Labor market subcontracting is a global phenomenon. This paper presents a theory of wage fairness in a subcontracted labor market, where workers confront multi-party employment relationships and deep wage inequities between regular and subcontractor-mediated hires. We show that subcontracting derives its appeal from a downward revision of workers' fair wage demand when producers delegate employment decisions down the supply chain. Furthermore, subcontracting creates a holdup problem, resulting in wages that workers deem unfair, along with adverse worker morale consequences in equilibrium. These insights reveal the efficiency costs of subcontracting as an employer strategy to redress workers' demand for fair wages.

Keywords: subcontracting; wage fairness (search for similar items in EconPapers)
JEL-codes: J41 J48 O43 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-09
New Economics Papers: this item is included in nep-lma and nep-ore
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published - published in: Journal of Economic Behavior and Organization, 2019, 168, 24 - 42

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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp12609

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