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Efficient Contracts with Costly Adjustment: Short-run Employment Determination for Airline Mechanics

  • Card, David

This paper presents an empirical analysis of firm-specific employment and wage outcomes for mechanics in the domestic airlines industry. A dynamic contracting model is presented that incorporates both costly employment adjustment and potential gaps between contract wage rates and the opportunity value of workers' time. The model gives a useful description of the employment-output linkage in the data, but is less successful in capturing the dynamic relation between employment, contract wage rates, and wage rates outside the airline industry. Copyright 1986 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 76 (1986)
Issue (Month): 5 (December)
Pages: 1045-71

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Handle: RePEc:aea:aecrev:v:76:y:1986:i:5:p:1045-71
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  1. Hall, Robert E & Lilien, David M, 1979. "Efficient Wage Bargains under Uncertain Supply and Demand," American Economic Review, American Economic Association, vol. 69(5), pages 868-79, December.
  2. Orley C. Ashenfelter & David Card, 1982. "Time Series Representation of Economic Variables and Alternative Models of the Labor Market," Working Papers 528, Princeton University, Department of Economics, Industrial Relations Section..
  3. Svejnar, Jan, 1986. "Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry," Econometrica, Econometric Society, vol. 54(5), pages 1055-78, September.
  4. repec:pri:indrel:dsp01dr26xx382 is not listed on IDEAS
  5. Martinello, F., 1988. "Wage And Employment Determination In A Unionized Industry; The Iwa And The B.C. Wood Products Industry," Working Papers 1988-01, Brock University, Department of Economics.
  6. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November.
  7. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  8. Gallant, A. Ronald & Jorgenson, Dale W., 1979. "Statistical inference for a system of simultaneous, non-linear, implicit equations in the context of instrumental variable estimation," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 275-302.
  9. Alan Carruth & Andrew Oswald, 1984. "Miners' Wages in Post-War Britain: An Application of a Model of Trade Union Behavior," Working Papers 558, Princeton University, Department of Economics, Industrial Relations Section..
  10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  11. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 3-35.
  12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  13. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-44, December.
  14. John H. Pencavel, 1982. "The Trade-Off between Wages and Employment in Trade Union Objectives," NBER Working Papers 0870, National Bureau of Economic Research, Inc.
  15. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
  16. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S40-S87, June.
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