Competition for promotion and specialisation within the household

Author: Spencer Bastani, And Thomas Giebe, And Oliver Guertler, And

Dnr: 241/2022

In this theoretical subproject, we study the optimal labour supply within the family when both parents compete for promotion in their respective workplaces and the implications for specialisation within the household. The aim is to investigate, in the context of our stylised contest model, whether specialisation can arise as an efficient response to labour market competition even in situations where all workers have equal opportunities to advance their careers.

Economic research has highlighted how workplace contests, such as those related to promotions, can serve as effective tools to encourage higher performance, and identify highly productive individuals suitable for more demanding tasks. Contests can be effective in providing incentives for effort in situations where it is costly to measure the absolute level of effort but where it is possible to evaluate relative performance in relation to other workers. Contests are also effective in situations where an individual’s effort cannot be verified by a third party. In principle, a company could decide not to reward a worker by claiming that the effort was insufficient, and it would be difficult for a third party (such as a court) to prove otherwise. Instead, in a competition, prizes are promised in advance in the form of promotions and higher compensation. Furthermore, an external party can verify that a promotion has occurred, and the company has no incentive to promote anyone other than the most valuable worker because the cost of the promised prizes is independent of who in the company is promoted.