Wage-Employment Contracts: Global Results
AbstractThis paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms. The firms ' superior information about profitability conditions is responsible for this form of contract governance. Under plausible assumptions, such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk. It is shown that, if leisure is a normal good and firms are risk neutral, employment is always above the efficient level. Such a one-period implicit contracting model cannot, therefore, be used to "explain" unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0675.
Date of creation: May 1981
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- Lazear, Edward P, 1984.
"Incentives and Wage Rigidity,"
American Economic Review,
American Economic Association, vol. 74(2), pages 339-44, May.
- Aba Schwartz, 1982. "The Implicit Contract Model and Labor Markets: A Critique," Discussion Papers 513, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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