Wage Fairness in a Subcontracted Labor Market
This paper presents a theory of wage fairness in a subcontracted labor market
Abstract
Labor market subcontracting is a global phenomenon. Basu et al. (2019) present 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. They 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.
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Citation
Basu, A., Chau, N., Soundararajan, V. Wage Fairness in a Subcontracted Labor Market. Journal of Economic Behavior & Organization Volume 168, December 2019, Pages 24-42