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Going on the Long Race? - Employment Duration and (De)Regulation of Experimental Stochastic Labor Markets

Author

Listed:
  • Siegfried Berninghaus

    () (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe)

  • Sabrina Bleich

    () (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe)

  • Werner Güth

    (Max Planck Institute of Economics, Jena)

Abstract

If the future market wage is uncertain, engaging in long-term employment is risky, with the risk depending on how regulated the labor market is. In our experiment long-term employment can result either from offering long-term contracts or from repeatedly and mutually opting for rematching. Treatments differ in how regulations restrict the employer's flexibility in adapting the employment contract to changes of the market (wage). All treatments allow for longer contract duration as well as for mutually opting to be rematched. Effort is chosen by employees after a contract is concluded. Treatments vary from no flexibility to no restriction at all. Will more (downward) flexibility be used in ongoing employment but reduce efficiency? If so, deregulation may weaken rather than promote labor market efficiency. And will regulation crowd out long-term employment, either in the form of long-term contracts or voluntary rematching?

Suggested Citation

  • Siegfried Berninghaus & Sabrina Bleich & Werner Güth, 2009. "Going on the Long Race? - Employment Duration and (De)Regulation of Experimental Stochastic Labor Markets," Jena Economic Research Papers 2009-094, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2009-094
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    File URL: http://www.wiwi.uni-jena.de/Papers/jerp2009/wp_2009_094.pdf
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    More about this item

    Keywords

    deregulation; employment contracts; wage flexibility; principal-agent theory; experimental economics; repeated interaction;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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