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Job security and long-term investment: An experimental analysis

Author

Listed:
  • Gary Charness

    () (Department of Economics, University of California, Santa Barbara)

  • Ramon Cobo-Reyes

    () (Department of Economics, University of Granada & University of Exeter Business School)

  • Natalia Jimenez

    () (Department of Economics, Universidad Pablo de Olavide & Middlesex University)

  • J. Antonio Lacomba

    () (Departamento de Teoria e Historia Economica, University of Granada & Globe)

  • Francisco Lagos

    () (Departamento de Teoria e Historia Economica, University of Granada & Globe)

Abstract

This article considers three different types of experimental labor contracts. A novel aspect of our experimental design is that workers have the chance of investing money in a long-term project in order to increase their income. We find a strong relationship between what happens inside the labor market (worker’s performance) and what happens outside the labor market (long-term investment). Long-term labor relationships seem to provide a safer environment for undertaking successful long-term projects. In the other direction, investing in long-term projects leads workers to improve their performance inside the labor market. We also introduce a new type of performance-based dismissal-barrier contract, whereby firms are required to retain workers if they have satisfied the effort level required by the firms. We find that performance-based dismissal barriers in the labor market leads to more long-term employment relationships and higher overall productivity.

Suggested Citation

  • Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & J. Antonio Lacomba & Francisco Lagos, 2016. "Job security and long-term investment: An experimental analysis," Working Papers 16.13, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:16.13
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    References listed on IDEAS

    as
    1. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 817-869.
    2. Peter McDonald, 2000. "Gender Equity in Theories of Fertility Transition," Population and Development Review, The Population Council, Inc., vol. 26(3), pages 427-439.
    3. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-2379, August.
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    More about this item

    Keywords

    Incomplete contracts; long-term relationships; renewable dismissal barriers; workers’ stability; investment and experiments.;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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