Match Quality and Contractual Sorting

We ask whether match-specific quality has an effect on the type of contractual arrangements offered by firms to workers. We find evidence that this is the case and that contractual sorting is of first-order importance for wage dynamics and employment duration.

With
João Alfredo Galindo da Fonseca and Yaniv Yedid-Levi

Abstract
This paper studies the impact of match-specific heterogeneity on compensation arrangements. We study a model in which employers choose whether to link pay to production outcomes and show that they have an incentive to offer performance-based contracts when match-specific productivity is high. We examine the empirical content of the model using the NLSY79, which contains information about job histories and performance pay. We find that better match quality affects pay arrangements and employment durations. Direct evidence about the accrual of job offers to workers lends further support to the hypothesis that employers use performance-related compensation to preserve high-quality matches.

DRAFT (PDF)

Citation

@techreport{fgy2019contracts,
  title={Match Quality and Contractual Sorting},
  author={Galindo da Fonseca, Joao and Gallipoli, Giovanni and Yedid-Levi, Yaniv},
  year={2019},
  note = {Working Paper},
  institution={UBC, Vancouver School of Economics}
}