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Intertemporal Substitution in the Presence of Long Term Contracts

  • John Abowd

    (University of Chicago)

  • David Card

    (Princeton University)

The authors compare the implications of a symmetric information contracting model and a dynamic labor supply model for changes in earnings and hours. A simple test is whether earnings changes are more variable than hours changes, as predicted by the labor supply model, or less variable, as predicted by the contracting model. The authors apply this test to two longitudinal surveys of adult men and find that earnings are somewhat more variable than hours for men who never change employers. The estimates suggest that changes in earnings and hours not associated with survey measurement error occur at fixed wage rates.

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Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 546.

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Date of creation: Jun 1984
Date of revision:
Handle: RePEc:pri:indrel:166
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