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Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics

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    Rights statement: Copyright © 2009 by the American Economic Association. Permission to make digital or hard copies of part or all of American Economic Association publications for personal or classroom use is granted without fee provided that copies are not distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. Copyrights for components of this work owned by others than AEA must be honored. Snell, A., & Thomas, J. (2010). Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics. American Economic Journal: Macroeconomics, 2(3), 98–127, doi: 10.1257/mac.2.3.98

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http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.3.98
Original languageEnglish
Pages (from-to)98–127
Number of pages30
JournalAmerican Economic Journal: Macroeconomics
Volume2
Issue number3
DOIs
Publication statusPublished - Jul 2010

Abstract

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)

    Research areas

  • 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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