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Job security and long-term investment: An experimental analysis

Listed author(s):
  • 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)

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.

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File URL: http://www.upo.es/serv/bib/wps/econ1613.pdf
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Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 16.13.

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Length: 60 pages
Date of creation: 2016
Handle: RePEc:pab:wpaper:16.13
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  1. Peter McDonald, 2000. "Gender Equity in Theories of Fertility Transition," Population and Development Review, The Population Council, Inc., vol. 26(3), pages 427-439.
  2. 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.
  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.
  4. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
  5. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 437-459.
  6. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, May.
  7. Jordi Brandts & Matthew Ellman & Gary Charness, 2016. "Let'S Talk: How Communication Affects Contract Design," Journal of the European Economic Association, European Economic Association, vol. 14(4), pages 943-974, August.
  8. Eriksson, Tor & Poulsen, Anders & Villeval, Marie Claire, 2009. "Feedback and incentives: Experimental evidence," Labour Economics, Elsevier, vol. 16(6), pages 679-688, December.
  9. Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007. "Fairness and Contract Design," Econometrica, Econometric Society, vol. 75(1), pages 121-154, 01.
  10. Armin Falk & David Huffman & W. Bentley Macleod, 2015. "Institutions and Contract Enforcement," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 571-590.
  11. Jordi Brandts & Gary Charness, 2004. "Do Labour Market Conditions Affect Gift Exchange? Some Experimental Evidence," Economic Journal, Royal Economic Society, vol. 114(497), pages 684-708, July.
  12. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
  13. Urs Fischbacher & Simon Gachter, 2010. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Goods Experiments," American Economic Review, American Economic Association, vol. 100(1), pages 541-556, March.
  14. Alícia Adserà, 2004. "Changing fertility rates in developed countries. The impact of labor market institutions," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(1), pages 17-43, February.
  15. Haurin, Donald R. & Gill, H. Leroy, 1987. "Effects of income variability on the demand for owner-occupied housing," Journal of Urban Economics, Elsevier, vol. 22(2), pages 136-150, September.
  16. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  17. Steffen Altmann & Armin Falk & Andreas Grunewald & David Huffman, 2014. "Contractual Incompleteness, Unemployment, and Labour Market Segmentation," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 30-56.
  18. Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-1095, December.
  19. Brañas-Garza, Pablo & Bucheli, Marisa & Paz Espinosa, María & García-Muñoz, Teresa, 2013. "Moral Cleansing And Moral Licenses: Experimental Evidence," Economics and Philosophy, Cambridge University Press, vol. 29(02), pages 199-212, July.
  20. Sara Rica & Amaia Iza, 2005. "Career Planning in Spain: Do Fixed-term Contracts Delay Marriage and Parenthood?," Review of Economics of the Household, Springer, vol. 3(1), pages 49-73, November.
  21. George Hondroyiannis, 2010. "Fertility Determinants and Economic Uncertainty: An Assessment Using European Panel Data," Journal of Family and Economic Issues, Springer, vol. 31(1), pages 33-50, March.
  22. Robst, John & Deitz, Richard & McGoldrick, KimMarie, 1999. "Income variability, uncertainty and housing tenure choice1," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 219-229, March.
  23. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  24. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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