Wage fairness in a subcontracted labor market

Description

Labor market subcontracting is a global phenomenon. This paper presents a theory of wage fairness in a subcontracted labor market, where workers face multi-party employment relationships and significant wage inequities between regular employees and subcontracted workers. We show that subcontracting derives its appeal from a downward revision of workers’ fair wage expectations when producers delegate employment decisions down the supply chain. Furthermore, subcontracting creates a hold-up problem, resulting in wages that workers perceive as unfair, along with adverse effects on worker morale in equilibrium. These insights highlight the efficiency costs of subcontracting as an employer strategy to address workers’ demands for fair wages. © 2019

Publication Date

1-1-2019

DOI

10.1016/j.jebo.2019.09.022

Publisher

Elsevier B.V.

Keywords

Subcontracting, Wage fairness

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