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Testing for Contracting Effects on Employment

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  • Bils, Mark

Abstract

The author tests for the importance of wage rigidities from long-term contracts by observing how employment responds when firms and workers recontract. If rigidities are important, then employment should adjust after recontracting to partially undo its movements during the past contract. The author examines twelve manufacturing industries that display a strong bargaining pattern. He finds employment does rebound after recontracting, particularly in motor vehicles. This implies that contract rigidities are important. The author also finds responses in wage growth at the beginning of new contracts; but these responses are not related to the pattern of employment responses across industries. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 106 (1991)
Issue (Month): 4 (November)
Pages: 1129-56

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Handle: RePEc:tpr:qjecon:v:106:y:1991:i:4:p:1129-56

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  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  2. Rod Cross, 2000. "Hysteresis and Emu," Metroeconomica, Wiley Blackwell, vol. 51(4), pages 367-379, November.
  3. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  4. Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-71, August.
  5. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
  6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
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Cited by:
  1. Vivek Ghosal & Prakash Loungani, 1995. "Evidence on nominal wage rigidity from a panel of U.S. manufacturing industries," International Finance Discussion Papers 512, Board of Governors of the Federal Reserve System (U.S.).

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