A worker’s utility may increase in his own income, but envy can make his utility decline with his employer’s income. Such behavior may call for high-powered incentives, so that increased effort by the worker little increases the income of his employer. This paper uses a principal-agent model...

This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973-1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median...

A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, DNWR for individual workers may induce downward rigidity or "a floor" for the aggregate wage growth at positive or negative levels. Aggregate wage growth...

We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent's rent increases with...

In this paper we show how an upstream firm can prevent destructive competition among downstream firms producing relatively close substitutes by implementing a price-dependent profit-sharing rule. The rule also ensures that the downstream firms undertake investments which benefit the industry in...

This paper explores the effects of high skilled immigration to a host country with unionized low skilled labor and an unemployment insurance scheme. We show that such immigration can create a negative immigration surplus due to adverse effects on low skilled employment, provided that fiscal...

We analyze the consequences for sickness absence of a selective softening of job security legislation for small firms in Sweden in 2001. According to our differences-in-difference estimates, aggregate absence in these firms fell by 0.2-0.3 days per year. This aggregate net figure hides important...

In recent years, a large academic debate has tried to explain the rapid rise in CEO pay experienced over the past three decades. In this article, I review the main proposed theories, which span views of compensation as the result of a competitive labor market for executivesto theories based on...

This paper analyzes awards as a means of motivation prevalent in the scientific community, but so far neglected in the economic literature on incentives, and discusses their relationship to monetary compensation. Awards are better suited than performance pay to reward scientific tasks, which are...

Behavioral economics documents the importance of status and self-image concerns in the workplace, but is largely silent about how to instrumentalize them to induce effort. Awards - widespread in the corporate sector and elsewhere - are motivators that derive their value from such social...