Abstract
It is usually argued that workers can trade off wages and job security, an argument with limited empirical support. This article develops a worker discipline model where work effort involves a moral hazard problem, such that firms set wages and monitoring levels to reduce potential shirking. It is shown that the efficacy of such incentives might be reduced by an increased probability of lay-offs, in which case job security and high wages will be positively and not inversely related.
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The author thanks the following individuals for helpful comments (not always accepted) on various drafts of this paper: Roy Boyd, Satya Das, Gerry Duguay, Herbert Gintis, Donald Katzner, Tong Hun Lee, Richard Perlman, James Rebitzer, G. Richard Meadows, Mark Meitzen, W. Stanley Seibert, and Geoffrey K. Turnbull. He also thanks Donna Bennett of the Social Science Research Facility at UWM for technical assistance.
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Drago, R. Work discipline and lay-offs: Is there a trade-off between wages and job security?. Journal of Labor Research 7, 285–292 (1986). https://doi.org/10.1007/BF02685135
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DOI: https://doi.org/10.1007/BF02685135