Wage Floors, Imperfect Performance Measures, and Optimal Job Design

We analyze the effects of lower bounds on wages on optimal job design within firms. In our model, two tasks affect firm value and an imperfect performance measure. Due to cost advantages of specialization, assigning the tasks to different agents is efficient. Yet a sufficiently large wage floor induces the principal to distort incentives if not dismiss one agent. While imperfect performance measures are always harmful under multitasking, they may in fact increase profit under specialization. We further show that variations in the wage floor and the agents' reservation utility have significantly different effects on effciency and optimal job design