Journal of Labor Research

, Volume 32, Issue 2, pp 113-135

First online:

Contracts, Labor Supply and Income Targeting

  • Peter ChinloyAffiliated withKogod School of Business, American University
  • , Daniel T. WinklerAffiliated withBryan School of Business and Economics, Department of Accounting and Finance, University of North Carolina at Greensboro Email author 

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In many professions and personal services, a firm offers a contract with either proportional revenue sharing of the worker’s output or a contract with 100% revenue accruing to the worker in exchange for a fixed (debt) payment. Contingent on the contract, the worker chooses the mechanism to achieve the desired level of productivity. A higher revenue split induces the worker to be more productive in output per hour resulting in a higher wage. The relevant price of effort is the after-split, after-tax wage controlled for after-tax household income. Incentives through a higher split raise productivity and the return to effort. The sample is 1,559 U.S. real estate sales professionals paid on contract splits in 2007 and choosing their hours and effort. The compensated labor supply elasticity is positive and between approximately zero and 0.3 suggesting the absence of income targeting for these workers on split and 100% revenue contracts. But the inclusion of contractual income split provisions in the model substantially increases the labor supply elasticity.


Contract incentives Effort Net wage Income targeting

JEL Classification

G11 G12 M13