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Delays in Renewal of Labor Contracts: Theory and Evidence

  • Danziger, Leif

    ()

    (Ben Gurion University)

  • Neuman, Shoshana

    ()

    (Bar-Ilan University)

In many countries, an expired labor contract is automatically extended during the often protracted delay before the new contract is signed. Our theoretical model focuses on macroeconomic factors in explaining the delay. It emphasizes the importance of the realized nominal and real shocks, and of the levels of nominal and real uncertainty. The model is tested using Israeli collective wage agreements where long delays are frequent. The empirical findings strongly support the theoretical model. Thus, nominal uncertainty is found to increase the delay, and real uncertainty to decrease the delay, but less in the public than in the private sector.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 709.

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Length: 45 pages
Date of creation: Feb 2003
Date of revision:
Publication status: published in: Journal of Labor Economics, 2005, 23(2), 341-372
Handle: RePEc:iza:izadps:dp709
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  1. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Peter Cramton & Joseph S. Tracy, 1994. "The Determinants of U.S. Labor Disputes," Papers of Peter Cramton 94jole, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  3. Danziger, Leif, 1992. "On the Prevalence of Labor Contracts with Fixed Duration," American Economic Review, American Economic Association, vol. 82(1), pages 195-206, March.
  4. Vroman, Susan B, 1989. "Inflation Uncertainty and Contract Duration," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 677-81, November.
  5. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc.
  6. Harris, Milton & Holmstrom, Bengt, 1987. "On the Duration of Agreements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 389-406, June.
  7. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May.
  8. repec:cup:cbooks:9780521815345 is not listed on IDEAS
  9. Danziger, Leif, 1995. "Contract Reopeners," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 62-87, January.
  10. repec:cup:cbooks:9780521022460 is not listed on IDEAS
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