Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282171 
Year of Publication: 
2023
Series/Report no.: 
Discussion Paper No. 480
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
Abstract: 
Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting na¨ıve present-biased employees. Employers offer a dynamic contract with low early-career wages, an unattractive intermediate qualification stage, and high end-of-career wages. Upon reaching the qualification stage, present-biased employees exchange future wages for immediate rewards on an alternative career path – a choice unanticipated by their previous, na¨ıve, self. Thus, employers never pay high future wages. Firing costs help employers indicate that they will not oust employees instead of making promised payments, enabling early-career wage cuts.
Subjects: 
employment protection laws
present bias
dynamic contracting
JEL: 
D21
D90
J33
K31
M52
Document Type: 
Working Paper

Files in This Item:
File
Size
211.37 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.