Strategic Labour Contracts

D. G. Ferguson and Anming Zhang

Canadian Journal of Economics, 1994, vol. 27, issue 3, 734-51

Abstract: Labor contracts affect a firm's cost function and for this reason they can be used as a recommitment device to gain a strategic advantage against other firms. In a model that is otherwise neutral, it is found that if firms compete in prices, then strategic considerations alone yield results similar to those obtained by C. Azariadis (1983)--workers are underemployed and worse-off in more adverse states of nature. On the other hand, if firms compete in quantities, then the equilibrium contracts resemble those of J. Green and C. Kahn (1983)--workers are overemployed and better-off in more adverse states.

Date: 1994
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