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Optimal Compensation in Competitive Labor Markets with Heterogeneous Employers and Workers

Author

Listed:
  • Haefner, Samuel
  • Haeusle, Niklas
  • Koeniger, Winfried
  • Braun, Alexander

Abstract

We develop a model in which large risk-neutral firms and individual risk-averse consumers compete to employ heterogeneous workers by posting compensation menus. Production takes time, and we analyze how screening motives interact with the desire to smooth consumption. There is a unique symmetric separating equilibrium that is also efficient. In equilibrium, the extent to which the compensation scheme delays payment until the production quality becomes known depends on whether, and to which extent, the consumers are financially constrained. We discuss how our model relates to the design of compensation schemes in current online peer-to-peer markets.

Suggested Citation

  • Haefner, Samuel & Haeusle, Niklas & Koeniger, Winfried & Braun, Alexander, 2024. "Optimal Compensation in Competitive Labor Markets with Heterogeneous Employers and Workers," Economics Working Paper Series 2405, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2024:05
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    More about this item

    Keywords

    Adverse selection; Self selection; Peer-to-peer markets; Labor markets; Capital market imperfections;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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