Wage dynamics and career concerns in anarchistic firms

Abstract

We consider firms where a worker’s effort level is contractible, but individual output is not. We attempt to determine equilibrium degree of worker discretion in choice of task (specialization) when workers have private information about their abilities, but may not use it efficiently due to career concerns. When the market observability of task choice is low, career motives are weak, and equilibrium schemes give workers full discretion over task choice, to exploit worker private information. When the market observability is high, the firm assigns tasks to workers, as in standard principal-agent models, to avoid having workers herd to prestigious tasks (where they may be unproductive). The results may be applied to understand the recent trend towards greater worker discretion and responsibility, and to understand across-industry differences in such.