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New Evidence on Implicit Contracts from Linked Employer–Employee Data

Juha Kilponen () and Torsten Santavirta ()

Scandinavian Journal of Economics, 2010, vol. 112, issue 4, 864-883

Abstract: We improve the precision of the implicit contract model test proposed by Beaudry and DiNardo (1991). Our dataset allows us to define the exact industry and plant of a particular employment relationship, link local labor market characteristics to individual‐level wages, and control for composition effects. We find evidence in favor of the spot‐market model of wage setting in the whole sample, but there is significant variation across industries and education levels. In particular, the spot market matters most for low‐skill workers, while the implicit contract model with one‐sided limited commitment applies better to high‐skill workers.

Date: 2010
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