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Do Contracts Matter in Canada?



This paper empirically examines the view that wage rigidity in long-term labor contracts matters for the behavior of employment. In particular, I follow Bils's (1991) approach, which looks for systematic employment patterns in the first year of long-term contracts. Using a new panel data set which includes annual firm-level employment observations from the Canadian manufacturing sector, I find evidence in many industries that employment over-adjusts to shocks that occur during the contract. My examination of wage dynamics, however, indicates that for those industries in which contracts appear to matter for the behavior of employment, there is little indication that contractual wage rigidity is the source of the over-adjustment of employment.

Suggested Citation

  • Christopher Ragan, 1994. "Do Contracts Matter in Canada?," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 255-272, May.
  • Handle: RePEc:cje:issued:v:27:y:1994:i:2:p:255-72

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