IDEAS home Printed from
   My bibliography  Save this paper

How Close to an Auction is the Labor Market? Employee Risk Aversion, Income Uncertainty, and Optimal Labor Contracts


  • James N. Brown

    (Princeton University)


Section I of this paper develops a model of income insurance in the labor market. The model differs from those of previous analyses in its focus on quantitative implications regarding the degree to which wages diverge from marginal value products, both in time-series and in cross-section data. Sections II and III present empirical evidence consistent with these implications. The main empirical finding is that of short-term divergence, but long-term equality between wages and marginal value products. The labor market appears to differ from an auction market only in the short run, but this short-run divergence considerably reduces the potential variability of employees' realized wealth.

Suggested Citation

  • James N. Brown, 1980. "How Close to an Auction is the Labor Market? Employee Risk Aversion, Income Uncertainty, and Optimal Labor Contracts," Working Papers 514, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:134

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Weiss, Yoram, 1971. "Investment in Graduate Education," American Economic Review, American Economic Association, vol. 61(5), pages 833-852, December.
    2. Ryder, Harl E & Stafford, Frank P & Stephan, Paula E, 1976. "Labor, Leisure and Training over the Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(3), pages 651-674, October.
    3. A. B. Atkinson, 1971. "Capital Taxes, the Redistribution of Wealth and Individual Savings," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 209-227.
    4. Weiss, Yoram, 1971. "Learning by doing and occupational specialization," Journal of Economic Theory, Elsevier, vol. 3(2), pages 189-198, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:indrel:134. 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: (Bobray Bordelon). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.