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Contracts, Labor Supply and Income Targeting

Abstract  

In many professions and personal services, a firm offers a contract with either proportional revenue sharing of the worker’s
output or a contract with 100% revenue accruing to the worker in exchange for a fixed (debt) payment. Contingent on the contract,
the worker chooses the mechanism to achieve the desired level of productivity. A higher revenue split induces the worker to
be more productive in output per hour resulting in a higher wage. The relevant price of effort is the after-split, after-tax
wage controlled for after-tax household income. Incentives through a higher split raise productivity and the return to effort.
The sample is 1,559 U.S. real estate sales professionals paid on contract splits in 2007 and choosing their hours and effort.
The compensated labor supply elasticity is positive and between approximately zero and 0.3 suggesting the absence of income
targeting for these workers on split and 100% revenue contracts. But the inclusion of contractual income split provisions
in the model substantially increases the labor supply elasticity.

  • Content Type Journal Article
  • Pages 1-23
  • DOI 10.1007/s12122-011-9104-y
  • Authors
    • Peter Chinloy, Kogod School of Business, American University, 4400 Massachusetts Ave., NW, Washington, DC 20016, USA
    • Daniel T. Winkler, Bryan School of Business and Economics, Department of Accounting and Finance, University of North Carolina at Greensboro, room 383, P.O. Box 26170, Greensboro, NC 27402–6170, USA
    • Journal Journal of Labor Research
    • Online ISSN 1936-4768
    • Print ISSN 0195-3613
Posted in: Journal Article Abstracts on 03/08/2011 | Link to this post on IFP |
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