Testing For Contracting Effects On Employment
I test the importance of wage rigidities from long-term contracts by observing how employment behaves when firms and workers recontract. If rigidities are important then we should observe employment adjusting after recontracting to undo movements in employment during the past contract that were excessive due to rigid wages. The data are for twelve manufacturing industries that display a strong bargaining pattern. I find that contract rigidities are important, causing considerably larger fluctuations in employment than would occur with flexible wages. By far the most striking case is in motor vehicles where long-term contracts much more than double the size of fluctuations in employment. I also examine the behavior of wage rates when new contracts are introduced. Wage growth does respond to employment growth during the prior contract in several of the industries; but these responses are not related to the pattern of employment responses across industries.
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- Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-71, August.
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- Rod Cross, 2000. "Hysteresis and Emu," Metroeconomica, Wiley Blackwell, vol. 51(4), pages 367-379, November.
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"Hysteresis and the European Unemployment Problem,"
NBER Working Papers
1950, National Bureau of Economic Research, Inc.
- Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
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