Self-enforcing Employment Contracts and Business Cycle Fluctuations

Christian Sigouin ()

No 127, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: It is often argued that risk-sharing employment relationships provide a better description of labour relations than the standard Walrasian framework. Such relationships have been introduced in macroeconomic models under an assumption of full commitment. In the absence of commitment, however, these relationships must be self-enforcing. This paper examines the impact of limited commitment on labour market fluctuations. It is shown that self-enforcing employment contracts can explain several stylized facts related to the comovements of real wages and hours worked. Moreover, implications for the estimation of intertemporal labour supply elasticities are highlighted. In particular, it is shown that empirical studies of labour supply that neglect the existence of self-enforcing contracts may severely underestimate workers' willingness to substitute leisure intertemporally.

On dit souvent que des relations d'emploi impliquant un partage de risque donnent une meilleure description des relations de travail que le cadre Walrasien traditionnel. De telles relations ont été introduites dans des modèles macroéconomiques sous l'hypothèse de plein engagement. Toutefois, en l'absense d'engagement, ces relations doivent être auto-exécutoires. Ce papier étudie l'impact de l'engagement limité sur les fluctuations du marché de l'emploi. Il est montré que les contrats de travail auto-exécutoires peuvent expliquer plusieurs faits caractéristiques reliés aux comouvements du salaire réel et des heures travaillées. De plus, des implications pour l'estimation de l'élasticité intertemporelle de l'offre de travail sont mises en évidence. En particulier, il est montré que les études empiriques qui négligent l'existence de contrats auto-exécutoires peuvent sous-estimer sévèrement la volonté des travailleurs de substituter les loisirs entre les périodes.

Keywords: Commitment; implicit labour contracts; business cycles. (search for similar items in EconPapers)
JEL-codes: E3 J3 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2000-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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