This paper focuses on the endogenous determination of effort as a source of productivity growth. In the model, workers may be self-employed or hired in an ``industrial sector''characterized by double-moral hazard. On one side, workers' effort is not observable, but generates contractible signals. On the other side, detecting signals requires costly monitoring with inputs only observable by firms. Resulting labor contracts are bonus schemes. In addition, firms employ capital. As capital accumulates, labor demand increases, forcing firms to raise bonuses. Economic growth increases the ``industrial sector'' and employees' effort and is thus associated with increased labor productivity.