The Observational Implications of Labor Contracts in a Dynamic General Equilibrium Model

Randall Wright

Journal of Labor Economics, 1988, vol. 6, issue 4, 530-51

Abstract: Economies are studied where labor contracts, even without changing real allocations, can make equilibria appear different. One basic example is that wage observations generated by long-term employment contracts are biased measures of theoretical market wages. This idea is analyzed in a dynamic, stochastic, economic model, including both overlapping generations of finite-lived workers and infinite-horizon employers, so that the implications for business cycle, life cycle, and cross-sectional phenomena can be explicitly addressed. Understanding contracts in thi s way potentially allows one to reconcile several ostensibly anomalous aspects of the data with equilibrium theory. Copyright 1988 by University of Chicago Press.

Date: 1988
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