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Consumption and Savings with Unemployment Risk: Implications for Employment Contracts Author info | Abstract | Publisher info | Download info | Related research | Statistics Pissarides, Christopher
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This Paper derives optimal employment contracts when workers are risk-averse and there are employment and unemployment risks. Without income insurance, consumption rises during employment and falls during unemployment. Optimal employment contracts offer severance compensation to smooth consumption during employment without causing moral hazard. A pre-announced delay in dismissal when the job becomes unproductive provides further insurance but because of moral hazard it does not fully smooth consumption. During the delay consumption falls and the worker searches for another job. No delays in dismissals are optimal if exogenous unemployment compensation is sufficiently generous.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
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Date of creation: May 2002Date of revision:
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Keywords: employment risk notice of dismissal severence compensation unemployment risk Other versions of this item:
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
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