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Regulation or Markets? The Case of Employment Contracts

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  • W. Bentley MacLeod

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.(JEL J300, J410, K310)

Suggested Citation

  • W. Bentley MacLeod, 2005. "Regulation or Markets? The Case of Employment Contracts," CESifo Economic Studies, CESifo Group, vol. 51(1), pages 1-46.
    • Handle: RePEc:oup:cesifo:v:51:y:2005:i:1:p:1-46.
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    File URL: http://hdl.handle.net/10.1093/cesifo/51.1.1
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    Cited by:

    1. Armin Falk & David Huffman, 2007. "Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection, and Workfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 30-45, March.
    2. MacLeod, W. Bentley & Nakavachara, Voraprapa, 2006. "Legal Default Rules: The Case of Wrongful Discharge Laws," IZA Discussion Papers 1970, Institute of Labor Economics (IZA).

    More about this item

    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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