Constraints on the Choice of Work Hours: Agency Versus Specific-Capital
Lifetime contracts imply that at a given time, wages and value of marginal product (VMP) will diverge. The contract will specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. If hours are set efficiently, workers will face binding hours constraints. The agency model and the firm-specific capital models make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model explains the observed pattern of hours constraints.
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