The Consequences of Hiring Lower-Wage Workers in an Incomplete-Contract Environment

2014 ◽  
Vol 90 (3) ◽  
pp. 941-966 ◽  
Author(s):  
Jason L. Brown ◽  
Patrick R. Martin ◽  
Donald V. Moser ◽  
Roberto A. Weber

ABSTRACT Firms frequently attempt to increase profits by replacing some existing workers with new lower-wage workers. However, this strategy may be ineffective in an incomplete-contract environment because the new workers may provide lower effort in response to their lower wages, and hiring new lower-wage workers may damage the remaining original workers' reciprocal relationship with the firm. We conduct an experiment to examine this issue and find that when new lower-wage workers become available, firms hire them to replace original higher-wage workers and pay the new workers lower wages. However, these lower wages do not improve firm profit because the decision to hire new lower-wage workers causes both the new and remaining workers to provide lower effort. Moreover, hiring lower-wage workers reduces new workers' payoffs and, thus, decreases social welfare. These unintended consequences suggest that firms should consider both the wage savings and the potential costs when deciding whether to replace some workers with new lower-wage workers. We discuss the implications of our findings for contract design, hiring practices, and managerial accountants.

2019 ◽  
Vol 57 (1) ◽  
pp. 78-99 ◽  
Author(s):  
Xi Li ◽  
Krista J. Li ◽  
Xin (Shane) Wang

Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.


2020 ◽  
Author(s):  
Jianqiang Zhang ◽  
Krista J. Li

Consumers experience a sense of loss when a product’s quality does not match their expectations. To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ uncertainty about product quality and the resulting psychological loss. In this paper, we investigate the implications of CLA on firm profit, consumer surplus, and social welfare when firms endogenously make quality disclosure decisions. We find that CLA leads symmetric firms to disclose quality more often. Given that CLA weakly reduces consumers’ utility from buying a product and quality disclosure is costly, intuition suggests that CLA is detrimental to firms. We find that this intuition is true only in a monopoly. Surprisingly, CLA makes both firms in a competition better off. Moreover, CLA increases firms’ profit when they invest in quality disclosure instead of money-back guarantees to respond to CLA. We also find that CLA decreases consumer surplus and social welfare. Therefore, educating consumers to improve decision-making skills by deliberating on future outcomes and emotions can benefit firms at the cost of consumers and society. When firms disclose quality sequentially, CLA can discourage the follower from disclosing quality. A strong level of CLA increases the leader’s profit over the follower’s, thereby encouraging firms to be the first mover in quality disclosure. This paper was accepted by Juanjuan Zhang, marketing.


2017 ◽  
Vol 9 (1) ◽  
pp. 84-107
Author(s):  
Juliann Vikse ◽  
Shuang Lu ◽  
Chien-Chung Huang

Income inequality is a growing area of concern in both China and the United States, the world’s two largest economies today. Alongside the traditional social welfare system, taxation and philanthropy are two alternative mechanisms to reduce inequality that have received increasing attention worldwide. This paper explores the roles of taxation and philanthropy in reducing inequality. In analyzing policies relating to taxation and philanthropy across several countries, this paper concludes that despite limitations and unintended consequences, under the current systems in China and the United States, taxation and philanthropy can and should be more effectively used to reduce income inequality.


2021 ◽  
Author(s):  
Hend Ghazzai ◽  
Rim Lahmandi-Ayed

Abstract We study in this paper the effect of the type of information provided by an ecolabel. For this purpose, in the framework of a model of vertical differentiation, we compare the effects of a partial information label (Type I) and a complete information label (Type III) on firms' profits, industry profit, consumers' surplus, environmental damage and social welfare. A partial information label indicates that the environmental quality of a good exceeds some given threshold. The authority issuing a partial information label chooses its labeling criteria while maximizing the social welfare. A complete information label indicates the exact environmental quality chosen by firms. We prove that while a partial information label always improves the social welfare and deteriorates the green firm profit compared to a complete information label, the comparison between the two types of ecolabel in terms of the brown firm's profit, the industry's profit, the consumers surplus and the environment depend in a non-obvious way on the marginal cost of quality and on the environmental sensitivity to quality.


Author(s):  
Shiliang Cui ◽  
Kaili Li ◽  
Luyi Yang ◽  
Jinting Wang

Problem definition: “Slugging,” or casual carpooling, refers to the commuting practice of drivers picking up passengers at designated locations and offering them a free ride in order to qualify for high-occupancy vehicle (HOV) lanes. Academic/practical relevance: It is estimated that tens of thousands of daily commuters rely on slugging to go to work in major U.S. cities. As drivers save commute time and passengers ride for free, slugging can be a promising Smart Mobility solution. However, little is known about the welfare, policy, and environmental implications of slugging. Methodology: We develop a stylized model that captures the essence of slugging. We characterize commuters’ equilibrium behavior in the model. Results: We find that slugging indeed makes commuters better off. However, the widely observed free-ride tradition is socially suboptimal. As compared with the social optimum, commuters always underslug in the free-slugging equilibrium when highway travel time is insensitive to slugging activities but may overslug otherwise. The socially optimal outcome can be achieved by allowing pecuniary exchanges between drivers and passengers. Interestingly, passengers may be better off if they pay for a ride than if they do not under free slugging. We also find that although policy initiatives to expand highway capacity or improve public transportation always increase social welfare in the absence of slugging, they may reduce social welfare in areas where free slugging is a major commuting choice. Nevertheless, these unintended consequences would be mitigated by the introduction of pecuniary exchanges. Finally, contrary to conventional wisdom, slugging as a form of carpooling can result in more cars on the road and thus, more carbon emissions. Managerial implications: Our results call upon the slugging community to rethink the free-ride practice. We also caution that slugging benefits commuters possibly to the detriment of the environment.


2017 ◽  
Vol 33 (1) ◽  
pp. 128-146
Author(s):  
Allan S Queiroz ◽  
Raf Vanderstraeten

This article focuses on the shift from informal to formal employment in the sugarcane plantations of Alagoas, Northeast Brazil, and its unintended consequences. Drawing on the employment experiences of sugarcane cutters, the authors stress the main mechanisms that produce precarity within formal employment structures. Precarity is forged by means of employers’ hiring practices, which turn formal employment contracts into insecure and temporary ones, disciplinary techniques used to control workers’ daily productivity within this labour-intensive production process, and the parasitic uses of the unemployment insurance system. While job formalisation has given access to more social protection, it has also created a permanently temporary workforce, which is rehired discontinuously by the plantations. The authors’ analysis of the link between formal employment, precarity and state protection more particularly leads to a reconsideration of Ulrich Beck’s ‘Brazilianization thesis’.


2016 ◽  
Vol 11 ◽  
pp. 4
Author(s):  
Peter T. Dunlap

Last year we successfully introduced the Kindle and other portable devices to the Journal of Jungian Scholarly Studies. This year's Journal continues those formatting choices. As guest editor of this year’s journal I have the pleasure of introducing the four essays included in this volume. This year we have many good contributions building off of the 2015 JSSS conference on Nature and the Feminine: Psychological and Cultural Reflections that was held in Edmonton, Canada. The first paper in this year's Journal is by Elizabeth Nelson in which she connects a Jungian interpretation of the Homeric Hymn to Demeter with “a ritualized enactment of the central Eleusinian mysteries using the principles of authentic movement.” Through this practice she is able to approach Homer’s writing with a fresh perspective that interprets the reciprocal relationship between Hades and Persephone as generative, leading to the abundance of the underworld. What is particularly important about Elizabeth's paper is her effort to discuss movement as a means of interpreting myth. While necessarily approached experimentally, the use of movement in this manner offers room for future innovation. The second paper in this year’s journal is by Matthew Fike who explores Jungian themes in Doris Lessing’s novel Briefing for a Descent into Hell. He begins by describing what is known about Lessing’s modest appreciation of Jung and then suggests that she drew more on Jungian elements than has been previously recognized. Fike focuses on the extent to which Lessing likely was well versed in Jung’s Memories, Dreams, Reflections, which she used to portray her character “Charles Watkins’s descent into madness and return to sanity.” In his analysis Fike compares Jung’s actual experience of encountering the unconscious to Lessing’s description of Watkins’s. And, as you will see, the comparison is detailed and convincing. The third paper in the journal is by Inez Martinez who explores the way in which Isak Dinesen, in her short story “Blue Stones,” is able to reanimate the material world. Martinez connects these efforts to Jung’s interest in literature as a compensatory force for what a culture denies. She also traces the unintended consequences of Jung’s use of “deformed rather than perceived images,” in how they diminish “the material aspects of synchronicities.” Martinez encourages us to reconsider these aspects as a way of helping to heal an illness of our time, that is, the way in which our loss of the liveliness of matter has led to our being possessed by materialism. By connecting us to Dinesen’s writing, Martinez offers an example of literature as healing, as activating a reanimating power of the objective psyche. I’m pleased to introduce the fourth paper that has been written by Halide Aral from the University of Çankaya in Turkey. She analyzes “how heroic masculinity and Christianity, due to their negative attitude toward the feminine, problematize masculine individuation.” Using Jungian thought to guide the development of this thesis, Aral examines the characters of Romeo and Mercutio in Shakespear’s Romeo and Juliet. In this paper Aral makes a good case for the difficulties of masculine individuation, the necessity for it to include an integration of the feminine, and the lost opportunities when the femine is not integrated. Peter T. DunlapGuest Editor


2021 ◽  
Vol 2021 (026) ◽  
pp. 1-68
Author(s):  
Yavuz Arslan ◽  
◽  
Ahmet Degerli ◽  
Gazi Kabaş ◽  
◽  
...  

We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.


Author(s):  
Viyusani Moss

This article reflects on social welfare system and governance of housing markets from an end-user perspective. The article criticallyanalyses the way in which social welfare has correlated to unsustainable development and created self entitlement behaviours andattitudes in the South African low income housing market. The phenomenon was demonstrable by empirical research whosefindings confirmed an existence of an association between a fully subsidized social housing model (as underpinned by South Africa’s social welfare) and propensity to default on mortgages. The study found that the risk of default by homeowners in the low income housing market in South Africa is influenced by government’s housing grant model. In other words, the research established that the principle of servicing a mortgaged starter property (that is almost similar to a government free house by both structure and design) is not universally accepted by homeowners of these mortgaged houses. The unintended consequences are that the system has created indefinite expectations that potentially could; (i) erode the country’s balance sheet; (ii) add to non-payment behaviour; (iii) pressurize the economic and credit systems; (iv) propagate entitlement attitudes and mindsets; (v) create social instability and (v) widened the country’s balance of payment deficits.


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