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Limited Commitment Models of the Labour Market

Author

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  • Jonathan Thomas
  • Tim Worrall

Abstract

We present an overview of models of long-term self-enforcing labor contracts in which risk sharing is the dominant motive for contractual solutions. A base model is developed which is sufficiently general to encompass the two-agent problem central to most of the literature, including variable hours. We consider two-sided limited commitment and look at its implications for aggregate labor market variables. We consider the implications for empirical testing and the available empirical evidence. We also consider the one-sided limited commitment problem for which there exists a considerable amount of empirical support.

Suggested Citation

  • Jonathan Thomas & Tim Worrall, 2007. "Limited Commitment Models of the Labour Market," CESifo Working Paper Series 2109, CESifo.
    • Handle: RePEc:ces:ceswps:_2109
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    References listed on IDEAS

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    Cited by:

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    2. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.
    3. Pratap, Sangeeta & Quintin, Erwan, 2011. "Financial crises and labor market turbulence," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 601-615.
    4. David A. Green & James Townsend, 2010. "Understanding the wage patterns of Canadian less skilled workers: the role of implicit contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(1), pages 373-403, February.
    5. Oikonomou, Rigas, 2013. "Optimal Unemployment Insurance with Private Insurance," MPRA Paper 55726, University Library of Munich, Germany.
    6. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.
    7. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
    8. Philip Jung & Moritz Kuhn, 2013. "Wage dynamics in long-term contracts," 2013 Meeting Papers 556, Society for Economic Dynamics.
    9. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.
    10. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.

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    More about this item

    Keywords

    labor contracts; self-enforcing contracts; unemployment; business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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