Competition and Screening with Skilled and Motivated Workers

We study optimal contracts offered by two firms competing for the exclusive services of one worker, who is privately informed about her ability and her motivation. Firms differ both in their production technology and in the mission they pursue and a motivated worker is keen to be hired by the mission-oriented firm. We find that the matching of worker types to firms is always Pareto-efficient. When no single firm is able to employ all worker's types, then agent types sort themselves by motivation: the mission-oriented firm hires motivated types and the profit-oriented firm hires non-motivated ones, independently of ability. A compensating wage differential might emerge: given ability, the motivated worker provides more effort but is paid less by the mission-oriented firm. Such an earnings penalty is entirely driven by motivation, is increasing in ability and is associated with low-powered incentives in the mission-oriented sector.