International Journal of Manpower

In relation to the analysis of inequality and skill-bias innovation, this article develops a theoretical model for determining the influence of work organisation on incentives and earnings. In a linear agency model, which explains innovative work organisation practices from an incentive perspective, we show that the static impact of organisational forms on expected earnings can be decomposed into two effects (a risk premium effect and a task complementarity effect originated in learning and information diffusion). Such effects drive productivity and expected pay-offs upward, as observed in many recent empirical studies. Thus, the development of new work practices based on a greater degree of delegation contributes to the increase of earnings inequality. In a dynamic perspective, the model shows that knowledge dissemination will in general sustain the same trend. However, when initial efforts and productivity are relatively high, output and pay-offs will decline during the transition to the steady-state. The overall impact of organisational forms on earnings and inequality may therefore be ambiguous, depending on the importance of learning.