Implicit Contracts, Labor Mobility and Unemployment
Firms' inability to monitor their employees' search effort forces a tradeoff between risk-bearing and incentive considerations when designing employment-related insurance. Since the provision of insurance against firm-specific shocks adversely affects workers' incentives to find better jobs, the optimal contract provides only partial insurance: it prescribes low (high) wages and under (over) employment to encourage workers to leave (stay) at low (high) productivity firms; and it employs quits and layoffs as alternative means of inducing separations at low productivity firms, with the mix depending upon the relative efficiency of the on- and off-the-job search technologies. Our analysis of implicit contracts with asymmetric search information establishes that any consistent explanation for worksharing, layoffs, severance pay, quits and unemployment must focus on questions of labor mobility.
|Date of creation:||Jul 1987|
|Date of revision:|
|Publication status:||published as The American Economic Review, Vol. 78, No. 5, pp. 1046-1066, (December 1988).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2316. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.