A Dynamic Contracting Model for Wages and Employment in three European Economies

David de la Croix, Franz Palm and Gerard Pfann

No 1993021, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We present a dynamic non-linear model for an efficient contracting between a firm facing adjustment costs on labour and a union having preferences which are subject to habit formation. The model’s first order necessary conditions are estimated for the French, the Dutch and the Belgian labour market. The estimation results turned out to be remarkably similar for the three countries. Two alternative hypotheses are also investigated : (i) a myopic behaviour of the union and (ii) a competitive labour market. The performance of the efficient contract model with a forward-looking union is found to be superior to that of the neo-classical model in explaining the dynamics of employment and wages in the three countries.

Keywords: employment; wages (search for similar items in EconPapers)
JEL-codes: E24 (search for similar items in EconPapers)
Pages: 19
Date: 1993-11-01
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Citations: View citations in EconPapers (1)

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Journal Article: A dynamic contracting model for wages and employment in three European economies (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1993021

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