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New evidence on implicit contracts from linked employer-employee data

Juha Kilponen () and Torsten Santavirta

No 12/2010, Research Discussion Papers from Bank of Finland

Abstract: We improve the precision of the test of the implicit contract model that Beaudry and DiNardo proposed twenty years ago. Our data set allows us to define the precise industry and plant of a particular employment relationship, link local labour market characteristics and company characteristics to the individual level of wages, and control for composition effects. We find evidence in favour of the spot market model of wage setting in the whole sample, but there is significant variation across industries and educational 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: 2010-04-08
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Published in Published in Scandinavian Journal of Economics, Special Issue 112, No. 4, 2010: 864-883 ; https://doi.org/10.1016/j.jedc.2010.12.011

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