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Preprints, Working Papers, ... Year : 2023

When are wages cut? The roles of incomplete contracts and employee involvement

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Marco Fongoni
  • Function : Author
  • PersonId : 1199072
Daniel Schaefer
  • Function : Author
  • PersonId : 1218837
Carl Singleton
  • Function : Author
  • PersonId : 1218838

Abstract

We develop a model of incomplete employment contracts such that employees have some discretion over effort, which depends on their work morale. Nominal wage cuts have a strong negative effect on morale, while employee involvement in workplace decision-making tends to increase morale. We derive predictions on how these two mechanisms affect the decisions of firms to cut nominal wages. Using matched employer-employee and manager survey data from Great Britain, we find support for our model: nominal wage cuts are only half as likely when managers think that employees have some discretion over how they perform their work, but this reduced likelihood recovers partially when employees are involved in the decision-making process at their workplace.
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Dates and versions

hal-03953201 , version 1 (23-01-2023)

Identifiers

  • HAL Id : hal-03953201 , version 1

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Marco Fongoni, Daniel Schaefer, Carl Singleton. When are wages cut? The roles of incomplete contracts and employee involvement. 2023. ⟨hal-03953201⟩
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