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

Labour markets with turnover costs and fixed wage contracts: a general equilibrium model
Labour markets with turnover costs and fixed wage contracts: a general equilibrium model
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.
9706
University of Southampton
Larsen, J.D.J.
5d812598-b5d3-4bbc-abff-5f8eade9cf40
Larsen, J.D.J.
5d812598-b5d3-4bbc-abff-5f8eade9cf40

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

Record type: Monograph (Discussion Paper)

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.

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Published date: January 1997

Identifiers

Local EPrints ID: 33180
URI: http://eprints.soton.ac.uk/id/eprint/33180
PURE UUID: ed4afb10-a1fc-46b7-921f-74d05d548f47

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Date deposited: 25 Jan 2008
Last modified: 22 Jul 2022 20:40

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Contributors

Author: J.D.J. Larsen

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