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Wage-Employment Contracts: Global Results

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  • Jerry R. Green
  • Charles M. Kahn

Abstract

This paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms. The firms ' superior information about profitability conditions is responsible for this form of contract governance. Under plausible assumptions, such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk. It is shown that, if leisure is a normal good and firms are risk neutral, employment is always above the efficient level. Such a one-period implicit contracting model cannot, therefore, be used to "explain" unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information.

Suggested Citation

  • Jerry R. Green & Charles M. Kahn, 1981. "Wage-Employment Contracts: Global Results," NBER Working Papers 0675, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0675
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    References listed on IDEAS

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    1. Hall, Robert E & Lilien, David M, 1979. "Efficient Wage Bargains under Uncertain Supply and Demand," American Economic Review, American Economic Association, vol. 69(5), pages 868-879, December.
    2. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 511-518.
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    Cited by:

    1. Lazear, Edward P, 1984. "Incentives and Wage Rigidity," American Economic Review, American Economic Association, vol. 74(2), pages 339-344, May.
    2. Edward P. Lazear, 1983. "Pensions as Severance Pay," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 57-90, National Bureau of Economic Research, Inc.
    3. Aba Schwartz, 1982. "The Implicit Contract Model and Labor Markets: A Critique," Discussion Papers 513, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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