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Delays in Renewal of Labor Contracts: Theory and Evidence

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  • Leif Danziger

    (Ben-Gurion University, Central European University, and Institute for the Study of Labor)

  • Shoshana Neuman

    (Bar-Ilan University, Centre for Economic Policy Research, and Institute for the Study of Labor)

Abstract

In many countries, an expired labor contract is automatically extended during the often-protracted delay before the new contract is signed. Our theoretical model focuses on macroeconomic factors in explaining the delay. It emphasizes the importance of the realized nominal and real shocks, and of the levels of nominal and real uncertainty. The model is tested using Israeli collective wage agreements where long delays are frequent. The empirical findings strongly support the theoretical model. Thus, nominal uncertainty is found to increase the delay, and real uncertainty to decrease the delay, but less in the public than in the private sector.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 23 (2005)
Issue (Month): 2 (April)
Pages: 341-372

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Handle: RePEc:ucp:jlabec:v:23:y:2005:i:2:p:341-372

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References

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  1. Cramton, Peter C & Tracy, Joseph S, 1994. "The Determinants of U.S. Labor Disputes," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 180-209, April.
  2. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Danziger, Leif, 1992. "On the Prevalence of Labor Contracts with Fixed Duration," American Economic Review, American Economic Association, vol. 82(1), pages 195-206, March.
  4. Vroman, Susan B, 1989. "Inflation Uncertainty and Contract Duration," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 677-81, November.
  5. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May.
  6. Nerlove,Marc, 2005. "Essays in Panel Data Econometrics," Cambridge Books, Cambridge University Press, number 9780521022460.
  7. Robert Rich & Joseph Tracy, 2004. "Uncertainty and Labor Contract Durations," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 270-287, February.
  8. Harris, Milton & Holmstrom, Bengt, 1987. "On the Duration of Agreements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 389-406, June.
  9. Danziger, Leif, 1995. "Contract Reopeners," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 62-87, January.
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Cited by:
  1. Sanvi Avouyi-Dovi & Denis Fougère & Erwan Gautier, 2013. "Wage Rigidity, Collective Bargaining, and the Minimum Wage: Evidence from French Agreement Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1337-1351, October.
  2. Louis Christofides & Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series 1700, CESifo Group Munich.
  3. Robert Rich & Joseph Tracy, 2011. "Early contract renegotiation: An analysis of U.S. labor contracts from 1970 to 1995," Staff Reports 521, Federal Reserve Bank of New York.
  4. Louis Christofides & Amy Chen Peng, 2007. "Real Wage Chronologies," CESifo Working Paper Series 2096, CESifo Group Munich.
  5. Holden, Helge & Holden, Lars & Holden, Steinar, 2010. "Contract adjustment under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 657-680, April.
  6. Amy Peng & Louis N. Christofides, 2009. "Real Wage Chronology," Working Papers 011, Ryerson University, Department of Economics.
  7. Danziger, Leif, 2008. "Extension of labor contracts and optimal backpay," Labour Economics, Elsevier, vol. 15(1), pages 18-36, February.

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