Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/207434
Authors: 
Basu, Arnab K.
Chau, Nancy H.
Soundararajan, Vidhya
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12609
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Labor market subcontracting is a global phenomenon. This paper presents 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. We 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.
Subjects: 
wage fairness
subcontracting
JEL: 
J41
J48
O43
Document Type: 
Working Paper

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