Implicit Contracts, Labor Mobility, and Unemployment
AbstractFirms' inability to monitor their employees' search effort forces a tradeoff between risk-bearing and incentive considerations when designing employment-related insurance. Since the provision of insurance against firm-specific shocks adversely affects workers' incentives to find better jobs, the optimal contract provides only partial insurance: it prescribes low (high) wages and under (over) employment to encourage workers to leave (stay) at low (high) productivity firms; and it employs quits and layoffs as alternative means of inducing separations at low productivity firms, with the mix depending upon the relative efficiency of the on- and off-the-job search technologies. Our analysis of implicit contracts with asymmetric search information establishes that any consistent explanation for worksharing, layoffs, severance pay, quits and unemployment must focus on questions of labor mobility.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 78 (1988)
Issue (Month): 5 (December)
Other versions of this item:
- Richard J. Arnott & Arthur Hosios & Joseph Stiglitz, 1987. "Implicit Contracts, Labor Mobility and Unemployment," NBER Working Papers 2316, National Bureau of Economic Research, Inc.
- Richard Arnott & Arthur Hosios & Joseph Stiglitz, 1983. "Implicit Contracts, Labour Mobility and Unemployment," Working Papers 543, Queen's University, Department of Economics.
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