Wage Incentive Profiles in Dual Labour Markets

23 Pages Posted: 15 Oct 2015

See all articles by Marco Di Cintio

Marco Di Cintio

University of Salento - Department of Economics and Mathematics and Statistics

Emanuele Grassi

University of Salento - Dipartimento di Scienze dell'Economia

Date Written: October 2015

Abstract

This paper formalizes the use of flexible labour contracts in an efficiency wage framework, and derives market dualism as an endogenous outcome. By allowing temporary contracts to be either renewed or converted into permanent contracts, we obtain new theoretical insights into the market equilibrium. The conversion rate is itself an incentive device that acts as a substitute for the wage, and firms pay a wage differential in favour of permanent workers. The model also predicts that even if firms hire exclusively under flexible contracts, dualism arises as a feature internal to each firm and, consequently, as a market property.

Suggested Citation

Di Cintio, Marco and Grassi, Emanuele, Wage Incentive Profiles in Dual Labour Markets (October 2015). Economica, Vol. 82, Issue 328, pp. 790-812, 2015, Available at SSRN: https://ssrn.com/abstract=2674327 or http://dx.doi.org/10.1111/ecca.12151

Marco Di Cintio (Contact Author)

University of Salento - Department of Economics and Mathematics and Statistics ( email )

Piazza Tancredi, n7
Lecce, 73100
Italy

Emanuele Grassi

University of Salento - Dipartimento di Scienze dell'Economia ( email )

via per Monteroni
Lecce, 73100
Italy

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