Labour makets with turnover costs and fixed wage contracts: a general equilibrium model


Larsen, J.D.J. (1997) Labour makets with turnover costs and fixed wage contracts: a general equilibrium model , Southampton, UK University of Southampton (Discussion Papers in Economics and Econometrics, 9706).

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Description/Abstract

This paper investigates the effects of linear turnover costs in employment in a competitive general equilibrium framework. with linear turnover costs, the Williamson (1975) hold-up issue can arise and firms may invest inefficiently. A renegotiable fixed wage contract can, as described by MacLeod and Malcomson (1993), establish efficient employment and investment decisions.

A computable general equilibrium model with these features is constructed and analysed theoretically and quantitatively. As in the risk insurance literature, it is found that fixed wage contracts dampen the fluctuations in the average wage and ensure that the correlation between output and wages is less than perfect. Relative to the risk insurance approach to contracts, this offers an alternative extension and improvement of the standard competitive general equilibrium models.

Item Type: Monograph (Discussion Paper)
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ePrint ID: 33180
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January 1997Published
Date Deposited: 25 Jan 2008
Last Modified: 16 Apr 2017 22:17
Further Information:Google Scholar
URI: http://eprints.soton.ac.uk/id/eprint/33180

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