Journal of Labor Economics Vol. 2 No. 2 1984
Wage Contracts When Output Grows Stochastically: The Roles of Mobility Costs and Capital Market Imperfections
Abstract
The paper considers an industry in which individual output follows a stochastic growth process with a cumulative effect. It analyzes the roles of labor mobility and capital market conditions in the determination of wage contracts. Positive costs of mobility are shown to be necessary for the provision of wage and employment insurance when workers have no access to the capital market. When insurance is provided, wages grow less than average productivity. If the capital market is perfect, wage insurance will be provided even in the absence of costs of mobility. In this case, wages grow faster than average productivity.
- DOI
- 10.1086/298029
- Volume
- 2
- Issue
- 2
- Pages
- 155-173
- Language
- en
- Sources
- openalex crossref