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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.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewu005
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    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.

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    More about this item

    JEL classification:

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

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