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Worker Response to a Menu of Implicit Contracts

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  • Don Bellante
  • Albert N. Link

Abstract

The literature on implicit contracts between workers and firms suggests that workers face a variety of such contracts, allowing each to choose the optimal trade-off between earnings level and earnings stability. This study tests some implications of that theory through an examination of the risk behavior of individual heads of households. The data source is the University of Michigan Panel Study of Income Dynamics , which includes a measure of the worker's taste for risk avoidance. Additionally, several predictions derived from Arrow's postulate of increasing relative risk aversion are examined. The results confirm a tendency of risk-averse individuals to choose jobs offering lower wages and lower financial risk. The results also provide indirect support for Arrow's postulate. The paper's findings suggest that studies of the earnings effects of discrimination may possibly understate those effects, just as studies of the value of a human life may understate that value.

Suggested Citation

  • Don Bellante & Albert N. Link, 1982. "Worker Response to a Menu of Implicit Contracts," ILR Review, Cornell University, ILR School, vol. 35(4), pages 590-599, July.
    • Handle: RePEc:sae:ilrrev:v:35:y:1982:i:4:p:590-599
    DOI: 10.1177/001979398203500410
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    Cited by:

    1. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.
    2. John Robst & Kathleen Cuson-Graham, 1999. "The effect of uncertain educational requirements on education and wages," Applied Economics, Taylor & Francis Journals, vol. 31(1), pages 53-63.
    3. repec:zbw:bofrdp:2010_012 is not listed on IDEAS
    4. Christian Etter, 1986. "Versicherungsaspekte des Arbeitsverhältnisses: Der Einfluß impliziter Arbeitsverträge auf Löhne und Beschäftigung," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 122(III), pages 405-424, September.
    5. Mona Said, 2004. "Compensating Differentials and the Queue For Public Sector Jobs: Evidence from Egyptian Household Survey Data," Working Papers 136, Department of Economics, SOAS University of London, UK.
    6. Juha Kilponen & Torsten Santavirta, 2010. "New Evidence on Implicit Contracts from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 864-883, December.

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