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Labour Markets form the Microeconomic perspective: Implicit Contract Theory

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  • Judith Sloan
  • Mark Wooden

Abstract

This paper deals with a recent development in labour economics ‐ that of implicit contract theory. A major impetus to its development has been the existence of involuntary unemployment and wage rigidity. In reality, there have been two streams of development ‐ one associated with the name of Okun which focusses on the fixed costs of employing labour and the importance of reputation for reliability on the part of employers. The other emphasises differences in risk‐aversion between employers and workers, viewing the implicit contract as a form of risk shifting. Both theories provide insights into the workings of labour markets, in particular, the pervasiveness of long‐term employment relations. although difficulties arise in terms of the enforceability of contracts. The broader literature on internal labour markets in useful in this context.

Suggested Citation

  • Judith Sloan & Mark Wooden, 1984. "Labour Markets form the Microeconomic perspective: Implicit Contract Theory," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 17(3), pages 120-129, November.
    • Handle: RePEc:bla:ausecr:v:17:y:1984:i:3:p:120-129
    DOI: 10.1111/j.1467-8462.1984.tb00463.x
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    References listed on IDEAS

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    1. J. R. Hicks, 1963. "The Theory of Wages," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-00189-7, December.
    2. Thurow, Lester, 1983. "Dangerous Currents: The State of Economics," OUP Catalogue, Oxford University Press, number 9780198771838.
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    Cited by:

    1. Keith Norris, 1984. "Comment: on ‘Labour Markets from the Microeconomic Perspective: Implicit Contract Theory’," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 17(3), pages 130-131, November.
    2. Bruce J. Chapman, 1984. "Comment: on ‘Labour Markets from the Microeconomic Perspective: Implicit Contract Theory’," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 17(3), pages 132-134, November.

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