Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289852 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 2317
Publisher: 
Johannes Kepler University of Linz, Department of Economics, Linz
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 naive 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, naive, 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

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