Extension of Labor Contracts and Optimal Backpay
AbstractThis paper explains why a union and a firm might settle on a contract duration that may later be extended and characterizes the optimal backpay for the holdout period. It is shown that the choice between concluding a shorter contract that may be extended and immediately concluding a longer contract depends on the prevalence of the different types of uncertainty in the economy. It is also shown that the optimal backpay reduces the negative impact of nominal uncertainty on a worker’s real income, but increases the worker’s exposure to idiosyncratic uncertainty.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2366.
Length: 26 pages
Date of creation: Oct 2006
Date of revision:
Publication status: published in: Labour Economics, 2008, 15 (1), 18-36
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Other versions of this item:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
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