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Regulation or Markets? The Case of Employment Contract

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Author Info
W. Bentley MacLeod

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Abstract

Regulation of the employment contract is both wide spread and diverse. The diversity of regulation is surprising because it suggests that there is little consensus regarding optimal intervention into the labor market. This paper discusses several economic reasons why it may be efficient for employers and employees to enter into long term contracts that make employee dismissal expensive. This analysis suggests that employment contracts can be expected to be complex in practice, and hence can be viewed as part of the technology of exchange. Given that knowledge of a technology requires skill and know-how, one cannot expect all employee-employer matches to discover and use the most efficient contract terms possible. It is suggested that the regulation of the employment relationship might be improved with the creation of a market for contracts, similar to the one that currently exists in the United States for construction projects.

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File URL: http://www.usc.edu/dept/LAS/economics/IEPR/Working%20Papers/IEPR_05.17_%5BMacLeod%5D.pdf
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File Function: First version, 2005
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Publisher Info
Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 05.17.

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Length: 46 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:scp:wpaper:05-17

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Armin Falk & David Huffman, 2006. "Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection and Workfare," IZA Discussion Papers 2310, Institute for the Study of Labor (IZA). [Downloadable!]
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