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Limited Commitment Models of the Labour Market

  • Jonathan P Thomas

    ()

    (Economics, University of Edinburgh)

  • Tim Worrall

    ()

    (Economics, Keele University)

We present an overview of models of long-term self-enforcing labour 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 labour 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.

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File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0711.pdf
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Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2007/11.

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Length: 31 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:kee:kerpuk:2007/11
Note: The authors gratefully acknowledge the financial support of the Economic and Social Research Council (Research Grant:RES-000-23-0865). We also thank Jim Malcomson, Leena Rudanko and Dongyun Shin for helpful comments on an earlier draft and the participants of the workshop on ``The theory and empirics of risk sharing'' at the Toulouse School of Economics, September 2007. The usual caveats apply.
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Order Information: Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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  1. Andy Snell & Jonathan Thomas, 2006. " Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics," CDMA Conference Paper Series 0603, Centre for Dynamic Macroeconomic Analysis.
  2. John Haltiwanger & Michael Waldman, 1985. "Insurance and Labor Market Contracting: An Analysis of the Capital Market Assumption," UCLA Economics Working Papers 370, UCLA Department of Economics.
  3. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier.
  4. Darren Grant, 2003. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from the National Longitudinal Surveys," ILR Review, Cornell University, ILR School, vol. 56(3), pages 393-408, April.
  5. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 972-1004, October.
  6. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  7. Devereux, Paul J. & Hart, Robert A., 2005. "The Spot Market Matters: Evidence on Implicit Contracts from Britain," IZA Discussion Papers 1497, Institute for the Study of Labor (IZA).
  8. Michelacci, Claudio & Quadrini, Vincenzo, 2005. "Financial Markets and Wages," CEPR Discussion Papers 4867, C.E.P.R. Discussion Papers.
  9. Dirk Krueger & Harald Uhlig, 2005. "Competitive Risk Sharing Contracts with One-Sided Commitment," SFB 649 Discussion Papers SFB649DP2005-003, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  11. Abowd, John M & Card, David, 1987. "Intertemporal Labor Supply and Long-term Employment Contracts," American Economic Review, American Economic Association, vol. 77(1), pages 50-68, March.
  12. Leena Rudanko, 2005. "Labor Market Dynamics under Long Term Wage Contracting," 2005 Meeting Papers 876, Society for Economic Dynamics.
  13. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1998. "Mutual Insurance, Individual Savings and Limited Commitment," Keele Department of Economics Discussion Papers (1995-2001) 98/14, Department of Economics, Keele University.
  14. Shin, Donggyun & Shin, Kwanho, 2008. "Why Are The Wages Of Job Stayers Procyclical?," Macroeconomic Dynamics, Cambridge University Press, vol. 12(01), pages 1-21, February.
  15. Dubois, Pierre & Jullien, Bruno & Magnac, Thierry, 2005. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," IDEI Working Papers 351, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2007.
  16. Sigouin, Christian, 2004. "Self-enforcing employment contracts and business cycle fluctuations," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 339-373, March.
  17. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  19. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August.
  20. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  21. Beaudry, Paul & DiNardo, John, 1995. "Is the Behavior of Hours Worked Consistent with Implicit Contract Theory?," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 743-68, August.
  22. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  23. Gauthier, Celine & Poitevin, Michel & Gonzalez, Patrick, 1997. "Ex Ante Payments in Self-Enforcing Risk-Sharing Contracts," Journal of Economic Theory, Elsevier, vol. 76(1), pages 106-144, September.
  24. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  25. Christian Calmès, 2007. "Self-Enforcing Labour Contracts and Macroeconomic Dynamics," International Advances in Economic Research, International Atlantic Economic Society, vol. 13(2), pages 200-213, May.
  26. Christian Sigouin, 2000. "Self-enforcing Employment Contracts and Business Cycle Fluctuations," Cahiers de recherche CREFE / CREFE Working Papers 127, CREFE, Université du Québec à Montréal.
  27. Shin, Donggyun, 1994. "Cyclicality of real wages among young men," Economics Letters, Elsevier, vol. 46(2), pages 137-142, October.
  28. Paul J. Devereux, 2001. "The Cyclicality of real wages within employer-employee matches," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(4), pages 835-850, July.
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