IDEAS home Printed from https://ideas.repec.org/p/aub/autbar/872.11.html
   My bibliography  Save this paper

Optimal Coexistence of Long-term and Short-term contracts in Labor Markets

Author

Listed:
  • Inés Macho-Stadler

    ()

  • David Pérez-Castrillo

    ()

  • Nicolás Porteiro

    ()

Abstract

We consider a market where firms hire workers to run their projects and such projects differ in profitability. At any period, each firm needs two workers to suc- cessfully run its project: a junior agent, with no specific skills, and a senior worker, whose effort is not verifiable. Senior workers differ in ability and their competence is revealed after they have worked as juniors in the market. We study the length of the contractual relationships between firms and workers in an environment where the matching between firms and workers is the result of market interaction. We show that, despite in a one-firm-one-worker set-up long-term contracts are the op- timal choice for firms, market forces often induce firms to use short-term contracts. Unless the market only consists of firms with very profitable projects, firms oper- ating highly profitable projects offer short-term contracts to ensure the service of high-ability workers and those with less lucrative projects also use short-term contracts to save on the junior workers' wage. Intermediate firms may (or may not) hire workers through long-term contracts.

Suggested Citation

  • Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2011. "Optimal Coexistence of Long-term and Short-term contracts in Labor Markets," UFAE and IAE Working Papers 872.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  • Handle: RePEc:aub:autbar:872.11
    as

    Download full text from publisher

    File URL: http://pareto.uab.es/wp/2011/87211.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Matutes, Carmen & Regibeau, Pierre & Rockett, Katharine, 1994. "Compensation Schemes and Labor Market Competition: Piece Rate versus Wage Rate," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(2), pages 325-353, Summer.
    2. Marko Terviö, 2009. "Superstars and Mediocrities: Market Failure in the Discovery of Talent -super-1," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 829-850.
    3. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, April.
    4. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
    5. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October.
    6. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
    7. Konstantinos Serfes, 2008. "Endogenous matching in a market with heterogeneous principals and agents," International Journal of Game Theory, Springer;Game Theory Society, vol. 36(3), pages 587-619, March.
    8. Maitreesh Ghatak & Massimo Morelli & Tomas Sjöström, 2001. "Occupational Choice and Dynamic Incentives," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 781-810.
    9. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Etienne Wasmer & Nicolas Lepage-Saucier & Juliette Schleich, 2013. "Moving towards a single labour contract: pros, cons and mixed feelings," Sciences Po publications info:hdl:2441/772g8m5php8, Sciences Po.
    2. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 533-572, May.
    3. repec:eee:labeco:v:46:y:2017:i:c:p:26-46 is not listed on IDEAS

    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aub:autbar:872.11. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila). General contact details of provider: http://edirc.repec.org/data/ufuabes.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.