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New evidence on implicit contracts from linked employer-employee data

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Author Info

  • Kilponen, Juha

    ()
    (Bank of Finland Research and European Central Bank)

  • Santavirta, Torsten

    ()
    (Aalto University School of Economics)

Abstract

We improve the precision of the test of the implicit contract model that Beaudry and DiNardo proposed twenty years ago. Our data set allows us to define the precise industry and plant of a particular employment relationship, link local labour market characteristics and company characteristics to the individual level of wages, and control for composition effects. We find evidence in favour of the spot market model of wage setting in the whole sample, but there is significant variation across industries and educational levels. In particular, the spot market matters most for low-skill workers, while the implicit contract model with one-sided limited commitment applies better to high-skill workers.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/1012netti.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 12/2010.

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Length: 26 pages
Date of creation: 28 Apr 2010
Date of revision:
Handle: RePEc:hhs:bofrdp:2010_012

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Related research

Keywords: wage cyclicality; limited commitment; match-specific fixed effects;

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Cited by:
  1. BELLOU Andriana & KAYMAK Baris, 2011. "Wages, Implicit Contracts, and the Business Cycle: Evidence from a European Panel," CEPS/INSTEAD Working Paper Series 2011-13, CEPS/INSTEAD.

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