Testing for Contracting Effects on Employment
AbstractI test the importance of wage rigidities from long-term contracts by observing how employment behaves when firms and workers recontract. If rigidities are important then we should observe employment adjusting after recontracting to undo movements in employment during the past contract that were excessive due to rigid wages. The data are for twelve manufacturing industries that display a strong bargaining pattern. I find that contract rigidities are important, causing considerably larger fluctuations in employment than would occur with flexible wages. By far the most striking case is in motor vehicles where long-term contracts much more than double the size of fluctuations in employment. I also examine the behavior of wage rates when new contracts are introduced. Wage growth does respond to employment growth during the prior contract in several of the industries; but these responses are not related to the pattern of employment responses across industries.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3051.
Date of creation: Jul 1989
Date of revision:
Publication status: published as Quarterly Journal of Economics, Vol. 106, no. 4 (1991): 1129-1156.
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Other versions of this item:
- Bils, M., 1989. "Testing For Contracting Effects On Employment," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 174, University of Rochester - Center for Economic Research (RCER).
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