Contracts, Labor Supply and Income Targeting

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Daniel T. Winkler, Professor (Creator)
The University of North Carolina at Greensboro (UNCG )
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Abstract: In many professions and personal services, a firm offers a contract with either proportional revenue sharing of the worker’s output or a contract with 100% revenue accruing to the worker in exchange for a fixed (debt) payment. Contingent on the contract, the worker chooses the mechanism to achieve the desired level of productivity. A higher revenue split induces the worker to be more productive in output per hour resulting in a higher wage. The relevant price of effort is the after-split, after-tax wage controlled for after-tax household income. Incentives through a higher split raise productivity and the return to effort. The sample is 1,559 U.S. real estate sales professionals paid on contract splits in 2007 and choosing their hours and effort. The compensated labor supply elasticity is positive and between approximately zero and 0.3 suggesting the absence of income targeting for these workers on split and 100% revenue contracts. But the inclusion of contractual income split provisions in the model substantially increases the labor supply elasticity.

Additional Information

Journal of Labor Research, 32(2), 113-135
Language: English
Date: 2011
Contract incentives, Effort, Net wage, Income targeting

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