The Ratchet Effect and the Market for Secondhand Workers

  title={The Ratchet Effect and the Market for Secondhand Workers},
  author={Yoshitsugu Kanemoto and W. Bentley MacLeod},
  journal={Journal of Labor Economics},
  pages={85 - 98}
Workers in a long-term relationship often have an incentive to hide their ability early in the relationship to avoid having the firm increase the level of output expected from them in the future. We show that competition for older workers will permit the implementation of efficient piece-rate contracts. When the difficulty of the job is unobserved by the firm, Gibbons (1987) has shown that all piece-rate contracts will be inefficient. Together, these results may explain why piece rates are… 

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