Labor Market Share Contracts When the Firm Has Two Variable Inputs

Christopher J Ellis

Economic Inquiry, 1988, vol. 26, issue 4, 767-74

Abstract: This paper extends M. L. Weitzman's analysis of share contracts. Firstly, a second variable input is introduced into a firm's production technology. Some share contracts give the firm an incentive to reduce worker compensation by manipulating the second variable input. This implies that contracts possessing this property cannot support the same long-run equilibrium as would be achieved with a wage contract. Secondly, a positively-sloped labor-supply curve is introduced. It is shown that, while share contracts reduce involuntary unemployment, they may not reduce total unemployment vis-a-vis wage contracts. The paper identifies the factors that determine relative employment variability. Copyright 1988 by Oxford University Press.

Date: 1988
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