Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

This paper analyses a model in which firms cannot pay discriminate based on year of entry. It is assumed that workers can costlessly quit at any time, while firms are committed to contracts. We solve for the dynamics of wages and unemployment, and show that real wages display a degree of downward rigidity and do not necessarily clear the labor market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match the actual unemployment series. We also show that equal treatment follows from the assumption of at-will employment contracting in our model. (JEL E24, E32, J31, J41)
Original languageEnglish
Pages (from-to)98–127
Number of pages30
JournalAmerican Economic Journal: Macroeconomics
Volume2
Issue number3
DOIs
Publication statusPublished - Jul 2010

Keywords / Materials (for Non-textual outputs)

  • E24
  • E32
  • J31
  • J41
  • Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • Business Fluctuations; Cycles
  • Wage Level and Structure; Wage Differentials
  • Labor Contracts

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