Valuation of employment decision criteria

The purpose of this paper is to expand our understanding of the decisions on labour supply, with particular attention given to the role of conditions of a contract between an employer and an employee. In the paper the value, from the employee’s perspective, of different characteristics of an employment contract are assessed.

Discrete choice experiment methodology is applied to evaluate employment attributes. Using data from a dedicated survey of students and graduates of social sciences in Poland, parameters of the employment-related utility function are estimated with a multinomial logit model and random parameter logistic regression. Due to the opt-out alternative in the design, reservation wages for different types of contracts are calculated.

The paper suggests that development conditions and psychological aspects of work are extremely important for employees’ decisions and their reservation wages.

Due to limitations related to data generation process, generalisation of the results to the whole population is not possible.

The results of the study may help to develop tools of contract optimisation and remuneration systems. Such tools might lead to improvements in the efficiency of contracts in the labour market by simultaneously reducing employment costs and increasing workers’ utility.

The analysis of preferences and reservation wages contributes to our understanding of the observed wage differentials. It also helps to understand some apparent paradoxes of the labour supply behaviour, which are impossible to explain within the traditional approach to wage modelling.