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Self-Enforcing Labour Contracts and Macroeconomic Dynamics

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Abstract

To properly account for the dynamics of the key macroeconomic variables, researchers incorporate various internal propagation mechanisms in their models. In general, these mechanisms implicitly rely on the assumption of a perfect equality between the real wage and the marginal product of labour. This paper features a micro-founded model of a limited-commitment firm, and derive endogenous dynamic labour contracts that produce a different linkage between the real wage and the marginal product of labour. The risk-sharing between the entrepreneur and the worker, both faced with enforcement problems, provides a different type of propagation mechanism. I investigate the dynamic properties of this endogenous rigidity in relation to the initial bargaining power of each agent. Copyright International Atlantic Economic Society 2007

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  • Christian Calmès, 2007. "Self-Enforcing Labour Contracts and Macroeconomic Dynamics," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(2), pages 200-213, May.
    • Handle: RePEc:kap:iaecre:v:13:y:2007:i:2:p:200-213:10.1007/s11294-006-9057-8
    DOI: 10.1007/s11294-006-9057-8
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    References listed on IDEAS

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    1. Calmès, Christian, 2003. "La poignée de main invisible et la persistance des cycles d’affaires : un survol," L'Actualité Economique, Société Canadienne de Science Economique, vol. 79(4), pages 563-581, Décembre.
    2. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
    3. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    4. Paul Beaudry & John DiNardo, 1995. "Is the Behavior of Hours Worked Consistent with Implicit Contract Theory?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 743-768.
    5. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    6. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 972-1004, October.
    7. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    8. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    9. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    10. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 37-50.
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    Cited by:

    1. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.
    2. Christian Calmès & Raymond Théoret, 2009. "The Non-Convexity Issues in a Limited-Commitment Economy," RePAd Working Paper Series UQO-DSA-wp012009, Département des sciences administratives, UQO.

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    More about this item

    Keywords

    internal propagation mechanisms; real business cycle; risk-sharing hypothesis; E12; E49; J30; J31; J41;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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