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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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