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Delays in Renewal of Labor Contracts: Theory and Evidence

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  • Danziger, Leif

    ()
    (Ben Gurion University)

  • Neuman, Shoshana

    ()
    (Bar-Ilan University)

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

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 709.

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Length: 45 pages
Date of creation: Feb 2003
Date of revision:
Publication status: published in: Journal of Labor Economics, 2005, 23(2), 341-372
Handle: RePEc:iza:izadps:dp709

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Keywords: renewal; delay; labor contract;

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References

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  1. Robert Rich & Joe Tracy, 2000. "Uncertainty and labor contract durations," Staff Reports, Federal Reserve Bank of New York 106, Federal Reserve Bank of New York.
  2. Nerlove,Marc, 2002. "Essays in Panel Data Econometrics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521815345.
  3. Cramton, Peter C & Tracy, Joseph S, 1994. "The Determinants of U.S. Labor Disputes," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 12(2), pages 180-209, April.
  4. Danziger, Leif, 1995. "Contract Reopeners," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 13(1), pages 62-87, January.
  5. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, Elsevier, vol. 38(5), pages 1021-1039, May.
  6. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 389-406, June.
  7. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Danziger, Leif, 1992. "On the Prevalence of Labor Contracts with Fixed Duration," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 195-206, March.
  9. Vroman, Susan B, 1989. "Inflation Uncertainty and Contract Duration," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 677-81, November.
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Citations

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Cited by:
  1. Louis Christofides & Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series 1700, CESifo Group Munich.
  2. Avouyi-Dovi, Sanvi & Fougère, Denis & Gautier, Erwan, 2011. "Wage Rigidity, Collective Bargaining and the Minimum Wage: Evidence from French Agreement Data," IZA Discussion Papers 5835, Institute for the Study of Labor (IZA).
  3. Amy Peng & Louis N. Christofides, 2009. "Real Wage Chronology," Working Papers, Ryerson University, Department of Economics 011, Ryerson University, Department of Economics.
  4. Louis Christofides & Amy Chen Peng, 2007. "Real Wage Chronologies," CESifo Working Paper Series 2096, CESifo Group Munich.
  5. Helge Holden & Lars Holden & Steinar Holden, 2005. "Contract Adjustment under Uncertainty," CESifo Working Paper Series 1472, CESifo Group Munich.
  6. Robert Rich & Joseph Tracy, 2011. "Early contract renegotiation: An analysis of U.S. labor contracts from 1970 to 1995," Staff Reports, Federal Reserve Bank of New York 521, Federal Reserve Bank of New York.
  7. Danziger, Leif, 2006. "Extension of Labor Contracts and Optimal Backpay," IZA Discussion Papers 2366, Institute for the Study of Labor (IZA).

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