Working Paper: CEPR ID: DP7658
Authors: Bjrn Bartling; Ernst Fehr; Klaus M. Schmidt
Abstract: In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These "high-performance work systems" are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.
Keywords: competition; complementarities; control; high-performance work systems; job design; reputation; screening; social preferences; trust
JEL Codes: C91; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition (L13) | trust strategy (Z13) |
| trust strategy (Z13) | better job offers (M51) |
| trust strategy (Z13) | higher employee effort (M54) |
| screening opportunities (I24) | trust strategy (Z13) |
| screening opportunities (I24) | job offers (M51) |
| screening opportunities (I24) | employee effort (M52) |
| lack of screening (I14) | control strategy (L21) |
| control strategy (L21) | lower effort (D29) |
| control strategy (L21) | lower job satisfaction (J63) |
| self-interested employees (L21) | dual labor market structure (J42) |
| screening treatment (C22) | total surplus (D46) |