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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. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
  2. Orley Ashenfelter & James N. Brown, 1985. "Testing the Efficiency of Employment Contracts," Working Papers 573, Princeton University, Department of Economics, Industrial Relations Section..
  3. 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.
  4. SVEJNAR, Jan, . "Bargaining power, fear of disagreement, and wage settlements: theory and evidence from U.S. industry," CORE Discussion Papers RP -720, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-75, September.
  6. Ashenfelter, Orley C & Card, David, 1982. "Time Series Representations of Economic Variables and Alternative Models of the Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 761-81, Special I.
  7. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report 27, Federal Reserve Bank of Minneapolis.
  8. 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.
  9. Pencavel, John H, 1984. "The Tradeoff between Wages and Employment in Trade Union Objectives," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 215-31, May.
  10. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November.
  11. 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..
  12. 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.
  13. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  14. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  15. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
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