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Workers as Partners: a Theory of Responsible Firms in Labor Markets

Francesco Del Prato, Marc Fleurbaey

Abstract

What happens when employers value worker welfare in frictional labor markets? We show this "responsibility" creates an endogenous wedge in the marginal labor cost -- akin to a hiring subsidy -- altering wage and vacancy incentives rather than only changing the surplus split. The wedge is strongest when outside options are weak and separations rare, implying larger wage premia in slack, low-mobility markets. In a wage-posting model with on-the-job search, responsible firms may occupy the high-wage segment even when less productive. In a DMP model, responsible firms commit to higher worker bargaining power, raising the value of unemployment and thereby wages at regular firms.

Workers as Partners: a Theory of Responsible Firms in Labor Markets

Abstract

What happens when employers value worker welfare in frictional labor markets? We show this "responsibility" creates an endogenous wedge in the marginal labor cost -- akin to a hiring subsidy -- altering wage and vacancy incentives rather than only changing the surplus split. The wedge is strongest when outside options are weak and separations rare, implying larger wage premia in slack, low-mobility markets. In a wage-posting model with on-the-job search, responsible firms may occupy the high-wage segment even when less productive. In a DMP model, responsible firms commit to higher worker bargaining power, raising the value of unemployment and thereby wages at regular firms.

Paper Structure

This paper contains 89 sections, 18 theorems, 167 equations, 4 figures, 1 table.

Table of Contents

  1. Introduction
  2. Responsibility as an endogenous labor-cost wedge
  3. Main results
  4. Contribution to the literature
  5. Roadmap
  6. Labor market responsibility at the firm level
  7. Environment and setting
  8. Timing
  9. Profit-maximizing firm
  10. Optimal vacancy posting
  11. Optimal wage posting
  12. Worker surplus
  13. Employment
  14. Unemployment
  15. Surplus
  16. ...and 74 more sections

Key Result

lemma 21

The function $W_k(w)$ is increasing in $w$.

Figures (4)

  • Figure 21: Use of labor market power by the responsible firm
  • Figure 31: Responsibility, productivity, and support ordering
  • Figure 41: Optimal corporate governance in the DMP model
  • Figure 42: Optimal corporate governance with elastic labor supply

Theorems & Definitions (24)

  • lemma 21
  • lemma 22
  • proposition 21
  • proposition 22
  • proposition 23
  • corollary 21
  • lemma 23
  • proposition 24
  • proposition 25
  • proposition 31
  • ...and 14 more