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Efficient Contracts with Costly Adjustment: Short-RUn Employment Determination for Airline Mechanics

  • David Card

This paper presents an empirical analysis of firm-specific employment and wage outcomes for mechanics in the domestic airline industry. A dynamic contracting model is presented that incorporates both costly employment adjustment and potential gaps between contract wage rates and the opportunity value of workers' time. The model gives a useful description of the employment-output linkage in the data, but is less successful in capturing the dynamic relation between employment, contract wage rates, and wage rates outside the airline industry.

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File URL: http://www.nber.org/papers/w1931.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1931.

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Date of creation: May 1986
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Publication status: published as Card, David. "Efficient Contracts with Costly Adjustment: Short-Run Employment Determination for Airline Mechanics," American Economic Review, Vol. 7 6, No. 5, December 1986, pp.1045-1071.
Handle: RePEc:nbr:nberwo:1931
Note: LS
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  1. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S40-S87, June.
  2. Svejnar, Jan, 1986. "Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry," Econometrica, Econometric Society, vol. 54(5), pages 1055-78, September.
  3. Alan Carruth & Andrew Oswald, 1984. "Miners' Wages in Post-War Britain: An Application of a Model of Trade Union Behavior," Working Papers 558, Princeton University, Department of Economics, Industrial Relations Section..
  4. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-44, December.
  5. Pencavel, John H, 1984. "The Tradeoff between Wages and Employment in Trade Union Objectives," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 215-31, May.
  6. Ashenfelter, Orley C & Card, David, 1982. "Time Series Representations of Economic Variables and Alternative Models of the Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 761-81, Special I.
  7. Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November.
  8. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  9. 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 868-79, December.
  10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  11. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  12. Martinello, F., 1988. "Wage And Employment Determination In A Unionized Industry; The Iwa And The B.C. Wood Products Industry," Working Papers 1988-01, Brock University, Department of Economics.
  13. Gallant, A. Ronald & Jorgenson, Dale W., 1979. "Statistical inference for a system of simultaneous, non-linear, implicit equations in the context of instrumental variable estimation," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 275-302.
  14. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  15. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
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