IDEAS home Printed from https://ideas.repec.org/a/oup/jleorg/v31y2015isuppl_1pi40-i76..html
   My bibliography  Save this article

Transaction Costs and the Employment Contract in the US Economy

Author

Listed:
  • W. Bentley MacLeod
  • Daniel Parent

Abstract

The purpose of this article is to use transaction cost economics (as in Williamson, O.E., M.L. Wachter, and J.E. Harris. 1975. "Understanding the Employment Relation: The Analysis of Idiosyncratic Exchange," 6(1) Bell Journal of Economics 250–78; Williamson, O.E. 1981. "The Economics of Organization: The Transaction Cost Approach," 87(3) American Journal of Sociology 548–77) to explore the relationship between job characteristics and observed employment contracts. Transaction cost considerations lead to jobs characterized by either normal or complex exchange. This in turn implies two contracting modes: contingent pay (fixed wage or piece-rate/commission contract) or noncontingent pay (salary with possibly a bonus). We show empirically that observed job characteristics, as measured by the Dictionary of Occupational Titles, can explain the contract form observed in the Panel Study on Income Dynamics. Second, we discuss the implications of contract form for wages and mobility, and show that noncontingent pay jobs have more able workers in more durable relationships. (JEL J31, J33, J41, K31)

Suggested Citation

  • W. Bentley MacLeod & Daniel Parent, 2015. "Transaction Costs and the Employment Contract in the US Economy," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(suppl_1), pages 40-76.
    • Handle: RePEc:oup:jleorg:v:31:y:2015:i:suppl_1:p:i40-i76.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/jleo/ewu005
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2009. "Performance Pay and Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 1-49.
    2. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
    3. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-138, February.
    4. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-307, May.
    5. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-1733, November.
    7. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1279-1333.
    8. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589833, October.
    9. Francine Lafontaine & Margaret E. Slade, 2012. "Inter-Firm Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    10. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June.
    11. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    12. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    13. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    14. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
    15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    16. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    17. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    18. Williamson, Oliver, 2009. "The Theory of the Firm as Governance Structure: From Choice to Contract," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 111-134, December.
    19. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    20. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589819, October.
    21. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    22. Slade, Margaret E, 1996. "Multitask Agency and Contract Choice: An Empirical Exploration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 465-486, May.
    23. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
    24. Mellow, Wesley & Sider, Hal, 1983. "Accuracy of Response in Labor Market Surveys: Evidence and Implications," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 331-344, October.
    25. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
    26. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    27. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    28. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589826, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Radoslawa Nikolowa, 2017. "Motivate and select: Relational contracts with persistent types," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 624-635, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    2. MacLeod, W. Bentley, 2011. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 18, pages 1591-1696, Elsevier.
    3. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    4. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    5. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Robert Gibbons, 2005. "Incentives Between Firms (and Within)," Management Science, INFORMS, vol. 51(1), pages 2-17, January.
    7. Patrick Francois & Joanne Roberts, 2003. "Contracting Productivity Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 59-85.
    8. W. Bentley MacLeod & James M. Malcomson, 2023. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment: Thirty Years On," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 470-499.
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    10. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    11. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Center for Research in Economics and Statistics.
    12. Anders Frederiksen & Elod Takats, 2004. "Optimal incentive mix of performance pay and efficiency wage," CERS-IE WORKING PAPERS 0418, Institute of Economics, Centre for Economic and Regional Studies.
    13. Eckstein, Zwi & van den Berg, Gerard J, 2003. "Empircial labor search models: A survey," Working Paper Series 2003:18, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    14. Fahn, Matthias & MacLeod, W. Bentley & Muehlheusser, Gerd, 2023. "Past and Future Developments in the Economics of Relational Contracts," IZA Discussion Papers 16427, Institute of Labor Economics (IZA).
    15. Eckstein, Zvi & van den Berg, Gerard J., 2007. "Empirical labor search: A survey," Journal of Econometrics, Elsevier, vol. 136(2), pages 531-564, February.
    16. Vincenzo Scoppa, 2003. "The Role of Turnover Costs in the Enforcement of Performance–Related Pay Contracts," Metroeconomica, Wiley Blackwell, vol. 54(1), pages 60-78, February.
    17. MacLeod, W Bentley, 2016. "Human capital: Linking behavior to rational choice via dual process theory," Labour Economics, Elsevier, vol. 41(C), pages 20-31.
    18. Corgnet, Brice & Hernán-González, Roberto & Mateo, Ricardo, 2023. "Peer effects in an automated world," Labour Economics, Elsevier, vol. 85(C).
    19. Hooper, Louise, 2008. "Paying for performance: Uncertainty, asymmetric information and the payment model," Research in Transportation Economics, Elsevier, vol. 22(1), pages 157-163, January.
    20. Ederington Josh & Minier Jenny & Jill Stowe C., 2019. "Risk and Discrimination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(3), pages 1-14, July.
    21. Macera, Rosario, 2018. "Intertemporal incentives under loss aversion," Journal of Economic Theory, Elsevier, vol. 178(C), pages 551-594.

    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jleorg:v:31:y:2015:i:suppl_1:p:i40-i76.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/jleo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.