Paper #1690

Title:

Optimal contracts with randomly arriving tasks

Authors:

Daniel Bird and Alexander Frug

Date:

January 2020

Abstract:

Workers rarely perform exactly the same tasks every day. Instead, their daily workload may change randomly over time to comply with the uctuating needs of the organiza- tion where they are employed. In this paper, we show that this typical randomness in workplaces has a striking eect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sucient to gen- erate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

Keywords:

Dynamic contracting, random tasks, seniority, promotion.

JEL codes:

D86, M51

Area of Research:

Microeconomics

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