Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics

Research output: Working paperDiscussion paper

Abstract

This paper analyses a model in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wage dynamics an unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages 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 actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages40
Publication statusPublished - 10 Jul 2006

Publication series

NameESE Discussion Papers
No.144

Keywords

  • labor contracts
  • business cycle
  • unemployment
  • equal treatment
  • cohort effects
  • E32
  • J41

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