The objective of this paper is to investigate the consequences of the long-term contracts between employers and employees. The motivation for long-term contracts derives from an insurance element, because the employees are assumed to be relatively more risk averse than the employers and then it is mutually advantageous to enter into arrangements for which all relevant risk is shifted from the workers to the firms. Specifically, we suppose all firms offer the same type of contract which is non-stochastic-wages and guarantee the employees payment o f the cost of job changes between the two sectors of the economy. In such a world the circumstances under which the resulting allocation of resources is pareto-optimal are shown. Also, the convenience for any productive sector to offer an alternative contract, different to the one prevailing in the rest of the economy, is explored.
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Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
Volume (Year): 16 (1979) Issue (Month): 48 () Pages: 189-206 Download reference. The following formats are available: HTML,
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