Wage Fariness in a Subcontracted Labor Market

Journal Article
Published on 1 December 2019

Working paper available through PEDL. Published article available here.


Labor market subcontracting is a global phenomenon. Basu et al. (2019) present a theory of wage fairness in a subcontracted labor market, where workers confront multi-party employment relationships and deep wage inequities between regular and subcontractor-mediated hires. They show that subcontracting derives its appeal from a downward revision of workers' fair wage demand when producers delegate employment decisions down the supply chain. Furthermore, subcontracting creates a holdup problem, resulting in wages that workers deem unfair, along with adverse worker morale consequences in equilibrium. These insights reveal the efficiency costs of subcontracting as an employer strategy to redress workers' demand for fair wages.


Arnab Basu

UK Research and Innovation

Nancy H. Chau

Cornell University

Vidhya Soundararajan

Indian Institute of Management Bangalore