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Contracts, the Spot Market Wage and Unemployment Benefits

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  • John Douglas Skåtun
  • Ioannis Theodossiou

Abstract

This paper presents a model of the labour market with a contract and a spot market sector. Contracts are binding and enforceable, but unemployed contract workers are free to work in the spot market. The contracting wage is shown to be constant across states. A non‐trivial result shows that the spot market wage is increasing with product price. An increase in product price has an ambiguous effect on contract employment. An increase in unemployment benefits increases the contracting sector wage whilst stabilizing the spot market wage, and may have ambiguous effects on unemployment.

Suggested Citation

  • John Douglas Skåtun & Ioannis Theodossiou, 2003. "Contracts, the Spot Market Wage and Unemployment Benefits," Metroeconomica, Wiley Blackwell, vol. 54(4), pages 474-498, November.
    • Handle: RePEc:bla:metroe:v:54:y:2003:i:4:p:474-498
    DOI: 10.1111/1467-999X.00176
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    References listed on IDEAS

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