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Contract-Theoretic Approaches to Wages and Displacement

Author

Listed:
  • Wouter J. den Haan

    (Dept. Economics, UCLA, San Diego)

  • Garey Ramey

    (Dept. Economics, UCLA, San Diego)

  • Joel Watson

    (Dept. Economics, UCLA, San Diego)

Abstract

This paper develops a theoretical framework for analyzing contracting imperfections in long-term employment relationships. We focus chiefly on limited enforceability and limited worker liquidity. Inefficient severance of employment relationships, payment of efficiency wages, the relative responses of wages and employment to business cycle shocks, and the propagation of these shocks are linked to the nature of contracting imperfections.

Suggested Citation

  • Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Contract-Theoretic Approaches to Wages and Displacement," Cowles Foundation Discussion Papers 1216, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1216
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d12/d1216.pdf
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    References listed on IDEAS

    as
    1. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
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    3. 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.
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    7. Ramey, Garey & Watson, Joel, 1999. "Contractual Intermediaries," University of California at San Diego, Economics Working Paper Series qt49p1c23g, Department of Economics, UC San Diego.
    8. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
    9. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
    10. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, April.
    11. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
    12. Ramey Garey & Watson Joel, 2001. "Bilateral Trade and Opportunism in a Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-35, November.
    13. MacLeod, W. Bentley & Malcomson, James M., 1993. "Wage premiums and profit maximization in efficiency wage models," European Economic Review, Elsevier, vol. 37(6), pages 1223-1249, August.
    14. Strand, Jon, 1992. "Business cycles with worker moral hazard," European Economic Review, Elsevier, vol. 36(6), pages 1291-1303, August.
    15. Garey Ramey & Joel Watson, 2002. "Contractual Intermediaries," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 362-384, October.
    16. MacLeod, W Bentley & Malcomson, James M, 1998. "Motivation and Markets," American Economic Review, American Economic Association, vol. 88(3), pages 388-411, June.
    17. repec:cdl:ucsdec:550851 is not listed on IDEAS
    18. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Beyer, Andreas & Farmer, Roger E.A., 2007. "Natural rate doubts," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 797-825, March.
    2. Carstensen, Vivian, 2000. "Employment Stability via Annualized Hours Contracts," Hannover Economic Papers (HEP) dp-230, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    3. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Job destruction and the experiences of displaced workers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 87-128, June.
    4. Carstensen, Vivian, 1999. "Beschäftigungssicherung durch Arbeitszeitflexibilisierung," Hannover Economic Papers (HEP) dp-228, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    5. James Costain & Marcel Jansen, 2010. "Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 782-811, December.
    6. David A. Miller & Joel Watson, 2023. "An Active-Contracting Perspective on Equilibrium Selection in Relational Contracts," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 530-561.
    7. Rauch, J E & Watson, Joel, 1999. "Starting Small in an Unfamiliar Environment," University of California at San Diego, Economics Working Paper Series qt4rp145hc, Department of Economics, UC San Diego.
    8. Beyer, Andreas & Farmer, Roger E.A., 2007. "Natural rate doubts," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 797-825, March.
    9. Rauch, James E. & Watson, Joel, 2003. "Starting small in an unfamiliar environment," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 1021-1042, September.
    10. James Costain & Marcel Jansen, 2010. "Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 782-811, December.
    11. Wang, Cheng & Yang, Youzhi, 2015. "Equilibrium matching and termination," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 208-229.
    12. Garey Ramey & Joel Watson, 2002. "Contractual Intermediaries," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 362-384, October.
    13. Patrick Fracois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Paper 1039, Economics Department, Queen's University.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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