Essays on labor market contracts\u27 design and implications on workers\u27 incentives and productivity

When an employer decides to hire particular workers, one of her most important decisions is to design a work contract that assures the right incentives for her employees and promotes behavior that maximizes workers\u27 productivity and profits. At the macroeconomic level, different contract design generates different equilibrium patterns and different policy implications. At the microeconomic level, different contract designs generate a structure of incentives for teams of workers in firms. Thus, identifying characteristics of optimal contracts is an indispensable tool to generate economic models with testable implications. This dissertation contains two essays that discuss how dissimilar contract designs can be used by employers to improve workers\u27 productivity and to maximize profits. Chapter 2 (written jointly with Roberto Pinheiro) develops the idea of health investment as a form of general human capital. We claim that health insurance improves workers\u27 productivity. By offering health insurance, employers reduce the expected time out of work in two ways: by reducing the probability a worker gets sick (preventive medicine) and/or increasing the probability a worker recovers from illness (curative medicine). Then, we develop an on-the-job search model that shows the impact of health coverage on productivity to evaluate how different policy designs can affect the labor market. We then evaluate the impact of different contribution rates, government mandates, and investments to improve preventive or curative medicine on labor market outcomes (e.g., unemployment, worker productivity, and the number of healthy and sick workers). Chapter 3 rationalizes a payment practice commonly observed in contract for work teams. The main characteristic of this scheme is that the better the result of the whole team, the greater the remuneration for each member of the group. This way, the monetary incentive given induces an employee to collaborate with his co-worker. We show that there are some cases where cooperation is desired