Long-Term Risk-Sharing Wage Contracts in an Economy Subject to Permanent and Temporary Shocks
Journal of Labor Economics
1988
This article develops and tests an implication of risk-shifting in labor market implicit contracts. A 2-period implicit contract model is presented. The optimal contract, in the face of bankruptcy constraints, calls for a real wage that responds asymmetrically to permanent and temporary shocks to the firm's revenue function. In particular, the real wage responds more to a permanent shock than to a temporary shock of the same size. This implication is tested on 12 4-digit Standard Industrial Classification (SIC) code industries. Eleven of the 12 industries sampled show evidence that supports the asymmetric wage response implication.
- DOI
- 10.1086/298176
- Volume
- 6 (1)
- Pages
- 83-99
- Language
- en
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- openalex crossref