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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 labour contracts in which risk‐sharing is the dominant motive for contractual solutions. A base model is developed that 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 labour 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.

Suggested Citation

  • Jonathan P. Thomas & Tim Worrall, 2007. "Limited Commitment Models Of The Labour Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(5), pages 750-773, November.
    • Handle: RePEc:bla:scotjp:v:54:y:2007:i:5:p:750-773
    DOI: 10.1111/j.1467-9485.2007.00440.x
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    2. David A. Green & James Townsend, 2010. "Understanding the wage patterns of Canadian less skilled workers: the role of implicit contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(1), pages 373-403, February.
    3. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.
    4. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.
    5. 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.
    6. Philip Jung & Moritz Kuhn, 2013. "Wage dynamics in long-term contracts," 2013 Meeting Papers 556, Society for Economic Dynamics.
    7. Oikonomou, Rigas, 2013. "Optimal Unemployment Insurance with Private Insurance," MPRA Paper 55726, University Library of Munich, Germany.
    8. Pratap, Sangeeta & Quintin, Erwan, 2011. "Financial crises and labor market turbulence," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 601-615.
    9. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.
    10. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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