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Limited Commitment Models Of The Labour Market

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  • Jonathan P. Thomas
  • Tim Worrall

Abstract

We present an overview of models of long-term self-enforcing labor contracts in which risk sharing is the dominant motive for contractual solutions. A base model is developed which is sufficiently general to encompass the two-agent problem central to most of the literature, including variable hours. We consider two-sided limited commitment and look at its implications for aggregate labor market variables. We consider the implications for empirical testing and the available empirical evidence. We also consider the one-sided limited commitment problem for which there exists a considerable amount of empirical support.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 54 (2007)
Issue (Month): 5 (November)
Pages: 750-773

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Handle: RePEc:bla:scotjp:v:54:y:2007:i:5:p:750-773

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References

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  1. Leena Rudanko, 2005. "Labor Market Dynamics under Long Term Wage Contracting," 2005 Meeting Papers, Society for Economic Dynamics 876, Society for Economic Dynamics.
  2. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  3. Krueger, Dirk & Uhlig, Harald, 2005. "Competitive risk sharing contracts with one-sided commitment," CFS Working Paper Series 2005/07, Center for Financial Studies (CFS).
  4. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," CESifo Working Paper Series 2184, CESifo Group Munich.
  5. John Haltiwanger & Michael Waldman, 1985. "Insurance and Labor Market Contracting: An Analysis of the Capital Market Assumption," UCLA Economics Working Papers, UCLA Department of Economics 370, UCLA Department of Economics.
  6. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  7. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  8. Jonathan P. Thomas & Andy Snell, 2009. "Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics," 2009 Meeting Papers, Society for Economic Dynamics 179, Society for Economic Dynamics.
  9. Abowd, John M & Card, David, 1987. "Intertemporal Labor Supply and Long-term Employment Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 50-68, March.
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  12. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
  13. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  14. Christian Calmès, 2007. "Self-Enforcing Labour Contracts and Macroeconomic Dynamics," International Advances in Economic Research, Springer, Springer, vol. 13(2), pages 200-213, May.
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  17. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  18. Gauthier, Celine & Poitevin, Michel & Gonzalez, Patrick, 1997. "Ex Ante Payments in Self-Enforcing Risk-Sharing Contracts," Journal of Economic Theory, Elsevier, Elsevier, vol. 76(1), pages 106-144, September.
  19. Shin, Donggyun & Shin, Kwanho, 2008. "Why Are The Wages Of Job Stayers Procyclical?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 12(01), pages 1-21, February.
  20. Darren Grant, 2003. "The effect of implicit contracts on the movement of wages over the business cycle: Evidence from the national longitudinal surveys," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 393-408, April.
  21. Claudio Michelacci & Vincenzo Quadrini, 2005. "Financial Markets and Wages," NBER Working Papers 11050, National Bureau of Economic Research, Inc.
  22. Paul J. Devereux & Robert A. Hart, 2007. "The Spot Market Matters: Evidence On Implicit Contracts From Britain," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 54(5), pages 661-683, November.
  23. Beaudry, Paul & DiNardo, John, 1995. "Is the Behavior of Hours Worked Consistent with Implicit Contract Theory?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 743-68, August.
  24. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(5), pages 972-1004, October.
  25. Sigouin, Christian, 2004. "Self-enforcing employment contracts and business cycle fluctuations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(2), pages 339-373, March.
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  28. Christian Sigouin, 2000. "Self-enforcing Employment Contracts and Business Cycle Fluctuations," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 127, CREFE, Université du Québec à Montréal.
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Citations

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Cited by:
  1. Leena Rudanko, 2008. "Labor Market Dynamics under Long Term Wage Contracting," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics wp2008-003, Boston University - Department of Economics.
  2. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
  3. Pratap, Sangeeta & Quintin, Erwan, 2011. "Financial crises and labor market turbulence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(6), pages 601-615.
  4. Oikonomou, Rigas, 2013. "Optimal Unemployment Insurance with Private Insurance," MPRA Paper 55726, University Library of Munich, Germany.

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