Wage-Employment Contracts

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Wage-Employment Contracts

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Title: Wage-Employment Contracts
Author: Kahn, Charles M.; Green, Jerry

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Citation: Green, Jerry and Charles M. Kahn. 1983. Wage-employment contracts. Quarterly Journal of Economics 98, no. 3, Suppl.: 173-187.
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Abstract: This paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms. The firms' superior information about profitability conditions is responsible for this form of contract governance. Under plausible assumptions, such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk. It is shown that, if leisure is a normal good and firms are risk-neutral, employment is always above the efficient level. Such a one-period implicit contracting model cannot, therefore, be used to "explain" unemployment as a rational byproduct of risk sharing between workers and a risk-neutral firm under conditions of asymmetric information.
Published Version: http://dx.doi.org/10.2307/1885379
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3203642
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