Working Paper: CEPR ID: DP1708
Authors: Daron Acemoglu; Andrew F. Newman
Abstract: This paper analyses the impact of labour demand and labour market regulations on the corporate structure of fims. It finds that higher wages are associated with lower monitoring, irrespective of whether these high wages are caused by labour market regulations, unions or higher labour demand. These comparative static results are in line with the broad trends in the data. The paper also finds that the organization of firms has important macroeconomic implications. In particular, monitoring is a type of ?rent-seeking? activity and the decentralized equilibrium spends excessive resources on monitoring. Labour market regulations that reduce monitoring by pushing wages up may increase net output or reduce it only by a small amount even though they reduce employment.
Keywords: corporate structure; efficiency wages; labour market regulations; monitoring; moral hazard
JEL Codes: J41; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher wages (J39) | lower monitoring (E52) |
| labor market regulations, unions, higher labor demand (J48) | higher wages (J39) |
| lower monitoring (E52) | net output (D85) |
| labor market regulations (J48) | net output (D85) |