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Labor force participation and pair-wise efficient contracts with search and bargaining

Title:

Labor force participation and pair-wise efficient contracts with search and bargaining

Engelhardt, Bryan and Fuller, David L. (2012) Labor force participation and pair-wise efficient contracts with search and bargaining. Labour Economics, 19 (3). pp. 388-402. ISSN 09275371

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Official URL: http://dx.doi.org/10.1016/j.labeco.2012.02.001

Abstract

A “constant” wage is pair-wise inefficient in a standard search model when workers endogenously separate from employment. We derive a pair-wiseefficient employment contract that involves workers paying a hiring fee (or bond) upon the formation of a match. We estimate the constant wage and pair-wiseefficientcontract assuming the hiring fee is unobservable, and find evidence to reject the pair-wiseefficientcontract in favor of the constant wage rule. A counterfactual experiment reveals the current level of laborforceparticipation to be 9.6% below the efficient level, and a structural shift to the pair-wiseefficientcontract improves welfare by roughly 3.5%.

Divisions:Concordia University > Faculty of Arts and Science > Economics
Item Type:Article
Refereed:Yes
Authors:Engelhardt, Bryan and Fuller, David L.
Journal or Publication:Labour Economics
Date:2012
ID Code:974495
Deposited By:ANDREA MURRAY
Deposited On:31 Jul 2012 15:03
Last Modified:31 Jul 2012 15:03
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