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Early Contract Renegotiation: An Analysis of US Labor Contracts, 1970-1995

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  • Robert Rich
  • Joseph Tracy

Abstract

This article examines the ex post flexibility of US labor contracts during the 1970-95 period by investigating whether unanticipated changes in inflation increase the likelihood of a contract being renegotiated prior to its expiration. We find empirical support for this hypothesis. Specifically, our results indicate that renegotiations are triggered principally by large and infrequent price shocks of either sign. When combined with evidence that ex ante contract durations are shorter during episodes of increased inflation uncertainty, our results suggest that these contracts are flexible both ex ante and ex post to changes in the evolution of inflation.

Suggested Citation

  • Robert Rich & Joseph Tracy, 2013. "Early Contract Renegotiation: An Analysis of US Labor Contracts, 1970-1995," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 825-842.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/669965
    DOI: 10.1086/669965
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    References listed on IDEAS

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