Self-Enforcing Labour Contracts and Macroeconomic Dynamics

Christian Calmès ()

International Advances in Economic Research, 2007, vol. 13, issue 2, 200-213

Abstract: To properly account for the dynamics of the key macroeconomic variables, researchers incorporate various internal propagation mechanisms in their models. In general, these mechanisms implicitly rely on the assumption of a perfect equality between the real wage and the marginal product of labour. This paper features a micro-founded model of a limited-commitment firm, and derive endogenous dynamic labour contracts that produce a different linkage between the real wage and the marginal product of labour. The risk-sharing between the entrepreneur and the worker, both faced with enforcement problems, provides a different type of propagation mechanism. I investigate the dynamic properties of this endogenous rigidity in relation to the initial bargaining power of each agent. Copyright International Atlantic Economic Society 2007

Keywords: internal propagation mechanisms; real business cycle; risk-sharing hypothesis; E12; E49; J30; J31; J41 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11294-006-9057-8

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