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Uncertainty and Labor Contract Durations

Author

Listed:
  • Robert Rich

    (Federal Reserve Bank of New York)

  • Joseph Tracy

    (Federal Reserve Bank of New York)

Abstract

This paper provides an empirical investigation into the relationship between uncertainty and ex ante U.S. labor contract durations over the period 1970 to 1995. Using a structural identification of aggregate demand and aggregate supply shocks, we find that desired contract durations are shorter during periods of heightened nominal or real uncertainty. This evidence supports the view that labor contract durations respond endogenously to the aggregate uncertainty prevailing at the time they are negotiated, but suggests that risk-sharing concerns are not paramount. The analysis also considers several measures of inflation uncertainty that have appeared in the literature. The results generally corroborate previous findings of an inverse relationship between desired contract durations and the level of inflation uncertainty. 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Robert Rich & Joseph Tracy, 2004. "Uncertainty and Labor Contract Durations," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 270-287, February.
    • Handle: RePEc:tpr:restat:v:86:y:2004:i:1:p:270-287
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    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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