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Long-term Risk-Sharing Wage Contracts in an Economy Subject to Permanent and Temporary Shocks

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  • Gamber, Edward N
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    Abstract

    This article develops and tests an implication of risk shifting in labor market impl icit contracts. A two-period implicit contract model is presented. Th e optimal contract, in the face of bankruptcy constraints, calls for a real wage that responds asymmetrically to permanent and temporary s hocks to the firm's revenue function. In particular, the real wage re sponds more to a permanent shock than to a temporary shock of the sam e size. This implication is tested on twelve four-digit Standard Indu strial Classification code industries. Eleven of the twelve industrie s sampled show evidence that supports the asymmetric wage response im plication. Copyright 1988 by University of Chicago Press.

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    Bibliographic Info

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

    Volume (Year): 6 (1988)
    Issue (Month): 1 (January)
    Pages: 83-99

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    Handle: RePEc:ucp:jlabec:v:6:y:1988:i:1:p:83-99

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    Web page: http://www.journals.uchicago.edu/JOLE/

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    Cited by:
    1. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 0964, European Central Bank.
    2. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2010. "Human Capital, Bankruptcy, and Capital Structure," Journal of Finance, American Finance Association, vol. 65(3), pages 891-926, 06.
    3. Guertzgen, Nicole, 2009. "Wage insurance within German firms: do institutions matter?," ZEW Discussion Papers 09-043, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Cardoso, Ana Rute & Portela, Miguel, 2005. "The Provision of Wage Insurance by the Firm: Evidence from a Longitudinal Matched Employer-Employee Dataset," IZA Discussion Papers 1865, Institute for the Study of Labor (IZA).

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